I 


The  National  Social  Science  Series 


Edited  by  Frank  L.  McVey,  Ph.D.,  LL.D., 
President  of  the  University  of  North  Dakota 

Now  Ready 

THE  COST  OF  LIVING.  WALTER  E.  CLARK,  Professor 
and  Head  of  the  Department  of  Political  Science  in 
the  College  of  the  City  of  New  York 

TKUSTS  AND  COMPETITION.  JOHN  F.  CROWELL, 
Associate  Editor  of  the  Wall  Street  Journal 

MONEY.  WILLIAM  A.  SCOTT,  Director  of  the  Course 
in  Commerce,  and  Professor  of  Political  Economy, 
University  of  Wisconsin 

TAXATION.  C.  B.  FILLEBROWN,  President  Massachu- 
setts Single  Tax  League,  Author  of  A  B  C  of  Taxation 

THE  FAMILY  AND  SOCIETY.  JOHN  M.  GILETTE, 
Professor  of  Sociology,  University  of  North  Dakota 

BANKING.    WILLIAM  A.  SCOTT 

THE  CAUSE  AND  CURE  OF  CRIME.  CHARLES  B. 
HENDERSON,  late  Professor  of  Sociology  in  the  Uni- 
versity of  Chicago 

In  Preparation 

PROPERTY  AND  SOCIETY.    A.  A.  BRUCE 

THE  CITY.    HENRY  C.  WRIGHT 

STATISTICS.    W.  B.  BAILEY 

BASIS  OF  COMMERCE.    E.  V.  ROBINSON 

GOVERNMENT    FINANCE    IN    THE    UNITED 

STATES.    CARL  C.  PLEHN 
WOMEN    WORKERS    AND    SOCIETY.      ANNIE    M. 

MCLEAN 
THE    NEWSPAPER    AS    A    SOCIAL    FACTOR. 

ALLAN  D.  ALBERT 
THE    STRUGGLE    FOR    LAND    IN    AMERICA. 

CHARLES  W.  HOLMAN 

Each,  Fifty  Cents  Net 
A.    C.    McCLURG   &    CO.,   PUBLISHERS,    CHICAGO 


TRUSTS 


AND 


COMPETITION 


BY 

John  Franklin  Crowell,  Ph.D.,  L.H.D. 

Of  the  Wall  Street  Journal,  Sometime  President  of 

Trinity  College,  Durham,  N.  C.,  and 

Professor  of  Economics  in 

Smith  College 


CHICAGO 

A.  C.  McCLURG  &  CO. 
1915 


Copyright 

A.  C.  McClurg  &  Co. 
1915 

Published    May,    1915 


Copyrighted   in   Great   Britain 


EDITOR'S  PREFACE 

AFTER  nearly  a  half-century  of  Trust  ex- 
perience it  is  becoming  apparent  what  the 
national  trust  problem  is,  and  how  it  shall  be 
handled.  It  needed  the  struggle  over  the  status 
of  the  Standard  Oil  Company,  the  uncertainties 
of  railroad  combinations,  and  the  crowning  pur- 
pose of  the  Northern  Securities  Company  to 
make  known  the  length  and  the  breadth  of  the 
problem.  For -full  half  of  the  time  devoted  to 
this  great  economic  question,  the  author  of  this 
volume  has  been  in  the  midst  of  the  situation. 
Equipped  wth  thorogoing  training  and  pos- 
sessed of  widencnowledge  of  the  facts,  Dr.  Crowell 
has  given  to  The  National  Social  Science  Series 
a  really  important  contribution  to  the  Trust 
question.  Big  business  is  on  trial,  so  is  com- 
petition as  an  economic  factor.  What  we  shall 
do  with  them?  This  is  the  question  the  book 
well  answers. 

F.  L.  M. 


AUTHOR'S  PREFACE 

THIS  book  seeks  to  bring  out  in  clear  relief 
the  main  aspects  of  the  issues  involved  in 
"Big  Business." 

It  comes  at  a  time  when  Government  and  Busi- 
ness are  beginning  to  work  out  a  method  of  co- 
operation whereby  Competition  may  be  con- 
served and  when  Corporate  Consolidation  seems 
disposed  to  respect  the  rules  of  the  game  in 
business  morals. 

The  purpose  has  not  been  to  exploit  any  spe- 
cial theory,  but  simply  to  analyze  the  facts  and 
conditions  by  the  light  of  economic  experience. 
Within  the  limits  of  what  is  fair  in  business  con- 
duct and  free  in  business  rivalry,  it  is  sought 
to  point  out  a  path  along  which  both  material 
progress  and  popular  contentment  may  find  it 
worth  while  living  together  in  the  national  house- 
hold. ^\ 

To  call  out  the  interest  of  the  reader  to  a  more 
extended  examination  of  the  larger  aspects  of 
the  Trust  Question,  a  larger  number  and  variety 
of  references  have  been  given  at  the  end  of  the 
volume.  If  it  succeeds  in  inducing  straighter 
thinking  and  sharper  discrimination  in  the  con- 
sideration of  public  questions,  it  will  have  served 
its  purpose. 

JOHN  FBANKLIN  CROWEKL. 

New  York  City,  April,  1915. 


CONTENTS 


PAGE 

Chapter  I.     Origin  and  Causes  of  Trusts     .     .  1 

1.  Typical    Trust ,  Definitions     ....  2 

2.  The  Case  Against  Competition     ...  4 

3.  Through    CompetTtTon~lb~^Combination  6 

4.  The  World's  Greatest  Trust  ....  8 

5.  The    Main    Causes    of   Trusts  10 


Chapter  II.    Development  of  Trust  Policies     .  14 

1.  Consolidation   for   Price\Control     .      .  14 

2.  Combination  by  Rate  Control     ...  17 

3.  Legitimate  Aims  in  Trust  Policy     .      .  20 

4.  The   Equilibrium  of   Business     ...  22 

5.  Extending      Control      Over      Railway 

Domain  25 


Chapter  III.    Competition— Fair  and  Unfair  .  30 

1.  Unfair  Corporate  Competition     ...  32 

2.  Coercion  by  the  Corporate  Crowd     .     .  34 

3.  Is  Big  Business  Unfair? 37 

4.  Legal  Limits  of  Fair  Competition     .     .  39 

5.  Court  Control  of  Unfair  Competition     .  41 


Contents 


PAGE 

Chapter  IV.    Regulation  and  Monopoly     .     .  46 

1.  Regulation  of  Competition     ....  46 

2.  The  Law  and  Limits  of  Monopoly     .      .  48 

3.  Elements  and  Sources   of  Monoply     .  52 

4.  Regulation  of  Public  Utilities     ...  56 

5.  Public  Relations  of  Service  Companies  59 

6.  The    Right    and    Wrong    in    Holding 

Companies 60 

Chapter  V.    Trade   Restraints   in   Commercial 

Practice 66 

1.  Cooperative    Trade    Agreements     .     .  66 

2.  Pooling  for  Fixing  Prices     ....  68 

3.  Why  Pooling  Agreements  Failed     .   '  .  71 

4.  Re-Sale  Contracts  in  Mercantile   Field  74 

5.  Rule  of  Reason  in  Trade  Restraints     .  78 

Chapter  VI.    Federal    Policy    Toward    Trusts  82 

1.  The  Sherman  Anti-Trust  Act     ...  83 

2.  Investigations   of  Trust    Conditions     .  85 

3.  Prosecutions  Under  the  Anti-Trust  Act  88 

4.  General    Results    of  Trust   Dissolution  91 

5.  More  Recent  Legislation  on  Trusts     .  94 

Chapter  VII.    Command  of  Capital  and  Credit  97 

1.  Supply    of    Investment    and    Working 

Capital 98 

2.  Capitalization    and    Promoter's    Profits  100 

3.  Risk  Elements  in  Trust  Capitalization  103 

4.  Use  and  Abuse  of  Over-Capitalizing     .  106 

5.  Banking  Credit  and  Trust  Control     .     .  108 


Contents 


PAGE 

Chapter  VIII.    Prices  Under  the  Trust  Regime  112 

1.  Course  of  Wholesale  Prices,   1890-1913  112 

2.  The  Retardation  of  Rate  of  Supply     .  115 

3.  Stabilizing    Wholesale    Prices     ...  117 

4.  Problems   in  Unfair   Merchandising     .  120 

5.  Quantity  Prices  and  Misrepresentation  122 

6.  Price-Making  Forces  in  Big  Business     .  125 

Chapter  IX.    Some  Problems  of  Trust  Manage- 
ment      129 

1.  Management  a  Cooperative  Service     .  130 

2.  Interest  Service  of  Capital     ....  131 

3.  Profits  of  Industrial  Trusts     ....  134 

4.  Industrial  Efficiency  of  Combinations  .  137 

5.  Labor  Relations  With  Large  Industries  142 

Chapter  X.    Status  of  Trusts  in  Other  Lands  .  147 

1.  Cartels  and  Syndicates  in  Germany     .  147 

2.  Attitudes  in  England  and  Her  Colonies  150 

3.  Austria-Hungary's  Steel  Trust     ...  152 

4.  Prohibition  or  Regulation      ^.      .     .  153 

5.  Cooperation   in   Foreign   Trade)    .    .    .  155 

Chapter  XI.    Combinations     and     the     Com- 
munity        158 

1.  Pioneering  Risks  in  Modern  Enterprise  158 

2.  Bargaining  Power  of  Big  Business     .  160 

3.  Adjustment  to  Public  Welfare     ...  162 

4.  Public      Commissions      as      Business. 

Umpires 164 

5.  The  Old  Game  Under  New  Rules     .     .  167 

6.  New  Wine  in  New  Bottles     ....  169 

References 175 

Index  181 


TRUSTS  AND  COMPETITION 


CHAPTER  I 

ORIGIN  AND  CAUSES  OF  TRUSTS 

FOR  more  than  a  third  of  a  century  the  trust 
question  in  the  United  States  has  been  in 
the  forefront  of  unsettled  public  issues.  From 
the  time  when  the  Legislature  of  Pennsylvania 
(1872)  revoked  the  charter  of  the  South  Im- 
provement Company  —  a  precursor  of  the  Stand- 
ard Oil  —  down  to  the  flood  of  anti-trust  bills 
recently  before  Congress,  there  has  not  been  a 
year  in  which  the  subject  was  without  considera- 
tion in  legislatures,  courts,  or  political  cotoren- 
tions.  J 

Probably  not  over  a  generation  ago  there 
was  no  question  as  to  the  title  of  competition  to 
be  recognized  as  the  law  of  ultimate  appeal  in 
things  economic.  The  late  Edward  Atkinson  ex- 
pressed this  principle  of  economic  freedom  as 
well  as  any  one.  "The  natural  law  of  free  ex- 
change and  competition,"  he  declared,  "evolves 
high  wages,  low  prices,  large  product,  and  a 
lessened  margin  of  profit  on  each  unit  of  prod- 
uct. That  is  the  law  of  progress."  Within  a 
quarter  century  or  less  there  has  arisen  in  com- 
merce, in  industry,  and  in  finance  a.  compar- 
1 


....  Trusts  and  Competition 


atively  modern  form  of  corporate  organization. 
A  combination  of  capital  resources,  of  mechan- 
ical equipment  and  of  national  or  international 
market  control  has  found  embodiment  in  what  is 
known  as  "Big  Business,"  or  "The  Trusts." 
In  its  short  history  it  has  apparently  proved  its 
capacity  in  many  different  fields  to  subordinate 
to  its  sway  the  principle  of  competitive  regula- 
tion. , 

1.  Typical  Trust  Definitions 

In  the  ordinary  sense  a  trust  is  correctly  un- 
derstood to  be  a  combination  of  corporations  oc- 
cupying under  public  charter  a  more  or  less 
dominant  position  in  its  own  field  of  economic 
service.  The  legality  or  illegality  of  its  opera- 
tions depends  on  the  purpose  of  its  practices  or 
agreements  in  its  dealings  with  other  interests. 
"The  object  and  intent  of  the  combination," 
as  the  United  States  Court  says,  "  determines  its 
legality." 

H'obson,  the  British  economist,  defines  trusts 
as  "  a  class  of  syndicates  which  have  established  a 
partial  or  total  monopoly  in  certain  productive 
industries  by  securing  the  ownership  of  a  suffi- 
cient proportion  of  the  instruments  of  produc- 
tion to  enable  them  to  control  prices."  * 

A  trust,  according  to  S.  C.  T.  Dodd,  the  well- 
known  Standard  Oil  attorney,  "  embraces  every 

*  Gold,  Prices,  and  Wages,  J.  A.  Hobson.  Methuen 
&  Co.,  London, 


Origin  and  Causes  of  Trusts  3 

act,  agreement,  or  combination  of  persons  or 
capital  believed  to  be  done,  made,  or  formed  with 
the  intent,  power,  or  tendency  to  monopolize 
business,  to  restrain  or  interfere  with  competitive 
trade,  or  to  fix,  influence,  or  increase  the  prices 
of  commodities."  * 

Easily  the  most  elaborate  definition  of  the 
trust  is  in  the  New  Jersey  laws  of  1913,  Chap- 
ter 13,  in  which  a  trust  is  defined  as  a  combina- 
tion or  agreement  to  do  any  one  of  six  distinct 
acts,  each  of  which  is  declared  to  be  illegal  and 
indictable. 

Probably  the  most  striking  feature  in  the 
trust  situation  has  thus  far  been  the  apparent 
contradiction  between  contemporary  legal  stan- 
dards and  the  main  tendencies  of  economic  life 
as  they  relate  to  values  and  prices.  The  core 
of  the  question  is  the  location  of  power  over 
prices  of  commodities  and  services.  Here  we 
see  wrought  out  within  comparatively  few  years 
a  re-partition  of  modern  business  between  the 
two  colossal  forces  in  economic  policy  —  combi- 
nation and  competition.  The  great  industrial 
governments  of  the  world  are  divided  on  the 
question  as  to  which  side  of  the  scale  the  State 
should  cast  in  the  weight  of  its  influence.  Great 
Britain  manifestly  regards  her  policy  as  follow- 
ing the  traditional  lines  of  competitive  freedom. 
Germany,  on  the  other  hand,  is  confessedly  the 

*  The  Truth  About  the  Trusts,  John  Moody.  Moody 
Publishing  Co.,  New  York,  p.  xiii. 


Trusts  and  Competition 


land  of  combinations  and  cartels  in  the  pursuit 
of  her  industrial  and  commercial  aspirations. 
Government  in  the  United  States  has  avowedly 
entered  upon  the  program  of  restoring  competi- 
tive conditions  as  the  basic  aim  of  its  industrial, 
commercial,  and  financial  policies. 

Half-way  between  these  two  opposing  codes 
of  economic  conduct,  partaking  partly  of  both 
of  them,  is  a  third  principle  recognized  as  co- 
operation, including  many  varieties  of  corporate 
and  collective  policy  ranging  from  profit-shar- 
ing to  state  socialism. 

These  three  —  Competition,  Cooperation,  and 
Combination  —  in  varying  degrees  have  been 
present  in  all  stages  of  development  of  modern 
business.  But  just  at  this  time  the  issue  is  pre- 
eminently that  of  the  possibility  of  the  contin- 
uance of  competition.  Professor  John  B.  Clark, 
one  of  our  most  incisive  thinkers  in  the  field  of 
economics,  declares:  "Our  industrial  system 
has  become  what  it  is  as  a  result  of  competition 
and  our  entire  policy  in  dealing  with  it  depends 
on  the  question  whether  competition  will  or  will 
not  continue."  * 

0.  The  Case  Against  Competition 

That  competition  in  its  captaincy  of  civiliza- 
tion was  forcing  society  back  into  savagery,  if 
not  into  suicide,  is  what  the  communistic  experi- 

*  The  Problem  of  Monopoly,  J.  B.  Clark.  Lemcke  & 
Bueehner,  New  York. 


Origin  and  Causes  of  Trusts 


ments  in  Europe  and  America  about  1840-50 
claimed  in  protest  against  the  existing  order. 
Yet  these  were  mere  voices  crying  in  the  wilder- 
ness compared  with  the  two  great  social  move- 
ments which  came  later  against  competition  as  a 
code  of  industry  in  the  form  of  Trade  Unionism 
and  Socialism.  The  future  of  competition  is 
probably  more  completely  wrapped  up  with  the 
progress  of  these  two  collective  efforts  than  with 
anything  else.  In  fact,  under  the  upward  trend 
of  prices  and  costs  of  living  since  1897,  the  con- 
viction has  been  gaining  ground  rapidly  in  some 
quarters  that  Unionism,  Socialism,  and  the 
Trusts  —  the  best  organized  factors  in  industrial 
society,  and  each  aspiring  more  or  less  directly 
for  the  control  of  government  —  are  already 
dominating  the  policy  of  the  modern  state  in 
opposition  to  earlier  conceptions  of  economic 
freedom. 

This  view,  that  old-fashioned  competition  is 
thing  of  the  past,  whatever  truth  there  may  be 
in  it,  finds  forceful  expression  in  Arthur  J. 
Eddy's  The  New  Competition.*  This  examina 
tion  of  the  adjustment  that  is  taking  place  in 
business  —  a  change  from  competition  to  co- 
operation—  concludes:  "Two  very  large  fac- 
tors in  modern  society  are  opposed  in  theory  and 
practice  to  competition  as  commonly  understood. 
Unionism  will  have  none  of  it  in  the  world  of 

*  The  New  Competition,  Arthur  J.  Eddy.    A.  C.  Mc- 
^  &  Co.,  (Jhicago. 


6  Trusts  and  Competition 

labor.  Socialism  will  have  none  of  it  in  the 
world  at  all.  When  to  the  opposition  of  these 
two  factors  is  added  the  opposition  of  the  cap- 
italists, society  would  seem  to  be  pretty  nearly  a 
unit  to  the  effect  that  competition  is  not  the 
good  thing  it  is  said  to  be."  If  any  more  ag- 
gressive indictment  of  the  competitive  policy 
were  wanted  that  of  President  Charles  R.  Van 
Hise  in  his  Concentration  and  Control  *  lacks 
nothing  in  its  portrayal  of  the  shortcomings  of 
the  old  order  in  contrast  with  our  newer  era  of 
large-scale  business  undertakings. 

3.  Through  Competition  to  Combination 

The  trust  movement,  as  a  matter  of  more  re- 
mote history,  had  its  origin  and  its  earlier  de- 
velopment in  business  conditions  prevailing  be- 
v'tween  the  two  panic  years  of  1873  and  1893. 
That  was  not  only  an  era  of  unprecedented  prog- 
ress in  railway  construction,  but  also  one  of  un- 
equaled  intensity  of  rivalry  in  railway  operation. 
To  manufacturing  and  trade  it  brought  with  it, 
as  we  have  seen,  the  necessity  of  meeting  com- 
petitors in  over-supplied  markets.  "This  was 
the  beginning  of  modern  industrial  competition 
in  the  United  States,"  says  Allen  Ripley  Foote. 
"  It  grew  without  restraint  until  it  developed  de- 
structive tendencies,  which  grew  stronger  and 

*  Concentration  and  Control:  A  Solution  of  the  Trust 
Problem  in  the  United  States,  C.  E.  Van  Hise.  The 
Macmillan  Company,  New  York. 


Origin  and  Causes  of  Trusts 


more  vicious  until  they  culminated  in  the  panic 
of  1893.  During  the  recuperative  period  from 
1893  to  1898  men  capable  of  intelligent  thought 
came  to  the  conclusion  that  competition  as  then 
practised  was  destructive,  and  that  combination, 
or  a  recognition  of  a  community  of  interests  in 
some  form  was  absolutely  necessary  to  enable  all 
persons  engaged  in  productive  industries  to  make 
a  profit.  Unregulated  competition  forced  the 
era  of  cooperation  into  existence,  which  com- 
menced when  men  began  to  change  their  busi- 
ness methods  to  safeguard  their  business  against 
wastage  and  destruction  by  adopting  measures 
to  restrain  trade  by  regulating  competition  be- 
tween themselves."*  ^r 

The  trust  problem,  as  it  has  been  known  ever 
since,  has  always  been  the  problem  primarily  of 
these  great  consolidated  corporations  formed  for 
the  purpose  of  effecting  some  reasonable  meas- 
ure of  escape  from  bankrupting  competition  by 
cooperation  among  its  units,  but  with  more  or 
less  inherent  tendency  toward  the  two  things 
forbidden  by  the  Sherman  Anti-Trust  Act  —  re- 
straint of  trade  and  monopoly  or  attempt  at 
monopoly. 

These  combinations,  in  the  order  of  their  ap- 
pearance as  factors  in  the  general  movement, 
furnish  four  groups  of  trusts,  of  which  Collier 
in  his  classification  down  to  1900  gives  three. 

*  Annals  of  the  Am.  Acad.  of  Polit.  and  Social  Science, , 
Philadelphia,  July,  1912,  p.  113. 


8  •     Trusts  and  Competition 

"The  three  generic  types  of  combination  [he 
concludes]  are,  first,  combinations,  pools,  and 
associations  based  simply  upon  agreements  made 
by  persons  who  still  continue  as  individual  own- 
ers and  which  generally  affect  prices,  but  some- 
times affect  output  and  methods  and  scope  of 
business;  second,  trusts  proper,  in  which  the 
owners  of  the  several  properties  transfer  their 
respective  interests  to  several  persons  in  trust 
to  manage  them  as  one  property  for  the  com- 
mon benefit ;  third,  great  corporations  which  ab- 
sorb, amalgamate,  and  unify  into  one  gigantic 
company  various  small  concerns."  * 

4.  The  World's  Greatest  Trust 

This  was  the  situation  prior  to  the  conditions 
of  competition  which  led  to  the  formation  of  the 
United  States  Steel  Corporation.  In  this  devel- 
opment we  have  the  fourth  type  of  trust  —  a 
holding  company  controlling  eleven  constituent 
subsidiaries  whose  combined  capital  liability, 
as  measured  by  stocks  and  bonds  issued,  is 
$1,402,846,817.  That  was  precipitated  by  a  very 
simple  yet  significant  change  —  the  decision  of 
the  Carnegie  company  to  go  into  the  manufac- 
ture of  finished  products  from  its  own  semi- 
manufactures ;  that  is,  to  make  pipes  from  bil- 
lets simply  by  extending  its  own  operations  one 

*  The  Trusts:  What  Can  We  Do  with  Them?  What 
Can  They  Do  for  Us?  W.  M.  Collier.  The  Twentieth  Cen- 
tury Pub.  Co.,  New  York. 


Origin  and  Causes  of  Trusts 


stage  farther  by  becoming  the  consumer  of  the 
output.  Hitherto  the  National  Tube  Company 
—  the  Tube  Trust  —  had  bought  its  billets  from 
the  Carnegie  Company.  By  building  a  proposed 
tube  mill  at  Conneaut  Mr.  Carnegie  and  his 
young  lieutenant,  Mr.  Schwab,  saw  a  saving  of 
$10.00  a  ton  under  existing  conditions  of  trans- 
porting coke  and  iron  ore.  "  It  has  been  an  un- 
written law  that  each  group  should  confine  itself 
to  the  fabrication  of  its  own  specialties  [read 
the  National  Tube  Company's  minutes  of  Jan- 
uary 15,  1901]  and  should  voluntarily  refrain 
from  using  constant  surplus  of  material  by  the 
production  of  the  special  product  of  its  neigh- 
bors. If  this  unwritten  law  is  to  be  ruthlessly 
disregarded  by  the  Carnegie  Company  it  will,  of 
course,  have  a  broader  significance  than  the  mere 
competition  with  our  own  products." 

It  was  this  threatening  competition  that 
brought  the  industrial  leaders  to  the  leaders  of 
finance  with  the  proposal  to  consolidate  the  sev- 
eral groups  of  iron  and  steel  trusts  under  a  cen- 
tralized management  in  the  United  States  Steel 
Corporation.  Up  to  that  time  the  trust  move- 
ment was  one  of  specialization  and  integration 
of  each  industry  within  its  own  manufacturing 
field.  With  the  departure  from  that  policy  came 
the  regime  in  which  the  single  consolidation  be- 
gan to  occupy  the  entire  productive  process  be- 
ginning with  the  ownership  of  raw  materials, 
embracing  the  transportation  of  materials  and 


10  Trusts  and  Competition 

ending  with  working  up  semi-manufactures  into 
finished  products  ready  for  the  consumer.  The 
trust  in  this  form  became  a  coordinated  series 
of  specialized  industries,  the  profits  of  each  of 
which  processes  it  hoped  to  turn  into  its  central 
treasury.  It  was  to  do  this  by  preventing  the 
wastes  of  competition,  by  standardizing  costs 
and  by  stabilizing  prices.  For  the  old-fash- 
ioned policy  of  progress  by  division  of  labor  it 
instituted  that  of  cooperation  by  centralized  con- 
trol. 

U    /  5.  The  Mam  Causes  of  Trusts 

We  are  now  prepared  to  summarize  the  causes 
of  trusts.  These  causes  may  be  designated  as 
primary  and  secondary.  Among  the  primary 
causes  are  the  following: 

(1)  Excessive  and  unfair  competition ,  where- 
V'by  manufacturing  capacity  was  duplicated, 
selling  costs  unduly  enhanced  and  profits  and 
credits  imperiled.  Unfair  competition  drove  the 
morale  out  of  business.  Potential  as  well  as 
actual  competition  were  effective  influences  in 
bringing  into  existence  the  large  consolidated 
corporations.  Potential  competition,  as  has  been 
seen  in  pipe  manufacturing,  occasioned  the  for- 
mation of  the  United  States  Steel  Corporation. 
Collier  calls  competition  the  "  mother  of  trusts." 
It  was  no  doubt  the  most  general  economic  cause. 
v/(2)  Railway  mt£_-dismminations.  The  priv- 

\ileges  of  preferential  freight  rates  were  enjoyed 
- 


Origin  and  Causes  of  Trusts  11 

more  or  less  exclusively  by  larger  or  more  power- 
ful shippers,  as  in  the  South  Improvement  Com- 
pany's contract  with  three  eastern  trunk  lines  on 
oil  rates,  and  by  the  large  meat-packing  plants 
of  the  west.  These  discriminations  were  among 
the  primary  commercial  causes  in  the  creation 
of  monopolizing  combinations.  These  included 
rebates,  "midnight"  schedules,  joint  rates  for 
industrial  lines,  etc.  "  No  more  powerful  instru- 
ment of  monopoly  could  be  used,"  declared  Jus- 
tice Holmes  of  the  United  States  Supreme  Court, 
"than  an  advantage  in  the  cost  of  transporta- 
tion." And  again,  as  Professor  Clark  says: 
"The  oldest  and  the  strongest  trust  in  the 
United  States  was  built  up  from  this  beginning 
by  virtue  of  rebates  on  freight  which  its  com- 
petitors could  not  get."  * 

(3)  Economies  of  production,  including  dis-*^ 
tribution  and  general  management.     These  em- 
braced ownership  of  raw  materials,  use  of  each 
others'    patents,    reduction    of    marketing    ex- 
penses, elimination  of  intermediate  profits  and 
wider  supervision  under  a  single  executive  man- 
agement due  to  the  multiplication  and  perfec- 
tion of  means  of  communication  and  accounting. 
Azel  F.  Hatch  at  the  Chicago  Conference  on 
Trusts  (1899)  gave  to  the  last-named  the  first 
rank   among  causes  in  this  movement.     These 
were  the  chief  industrial  inducements. 

(4)  Better  credit   and   command   of  capitar 

*  The  Problem  of  Monopoly. 


Trusts  and  Competition 


were  no  doubt  among  the  larger  financial  causes. 
The  trust  regime  coincides,  in  its  more  active 
period  of  growth,  with  the  fall  in  the  rates  of 
interest  due  to  the  increases  of  investment  cap- 
ital. These  lendings  to  industry  took  the  form 
of  stocks  and  bonds.  The  builders  of  the  trusts, 
says  Meade,  created  the  huge  mass  of  industrial 
securities  by  capitalizing  the  country's  manufac- 
turing industry,  to  the  sharing  of  the  profits  of 
which  the  investing  public  had  thus  been  ad- 
mitted. As  Hadley  points  out,  by  combination 
local  securities  obtained  a  national  market.* 
These  issues,  as  collateral  in  borrowings  at  bank, 
became  thereby  of  nation-wide  acceptability. 
The  fund  of  working  capital  in  manufacturing 
was  vastly  increased  both  by  issues  of  securities 
for  long-term  borrowing  from  the  public,  and 
by  their  use  as  collateral  for  making  short- 
term  loans  at  banks.  Such  expansion  of  credit 
marked  a  new  era  in  American  finance. 
/  (5)  The  necessity  of  greater  cooperation 
(among  corporations  in  their  effort  to  cope  with 
the  demands  of  trade  unionism  as  a  bargaining 
power,  the  belief  that  in  combination  lay  the 
hope  of  better  relations  between  capital  and 
labor,  and  the  desire  to  promote  a  higher  type 
of  welfare  among  employees.  These  were  the 
main  social  motives  among  the  industrial  and 
financial  leaders.  In  the  larger  economies  lay 
the  hope  of  higher  rewards  to  labor. 

*  Scribner  's  Magazine,  November,  1899. 


Origin  and  Causes  of  Trusts  13 

(6)  There  was  also  a  legal  aspect  to  this 
consolidating  tendency  among  corporations.  By 
1890  many  states  had  made  them  illegal,  but  the 
narrower  interpretation  of  the  Federal  laws  by 
the  Supreme  Court  led  to  the  rise  of  holding 
companies,  either  by  purchase  of  securities  or  by 
exchange  for  those  of  subsidiaries.  The  Federal 
law  was  taken  as  admitting  of  stock  purchases  of 
subsidiary  manufacturing  corporations  after  the 
Supreme  Court's  decision  on  the  sugar  refineries 
case.  The  rapid  increase  in  trusts  after  the 
Knight  case*  is  proof  of  the  purpose  of  cor- 
porations to  conform  their  organization  to  the 
authorized  import  of  existing  law. 

The  Sugar  Refineries  Company *s  agreement 
is  typical  of  impelling  reasons.  Its  objects  were 
officially  stated  to  be,  ( 1 )  To  promote  economy 
of  administration  and  to  reduce  the  cost  of  re- 
fining, thus  enabling  the  price  of  sugar  to  be 
kept  as  low  as  is  consistent  with  reasonable  profit ; 
(2)  To  give  each  refinery  the  benefit  of  all 
appliances  and  processes  known  or  used  by 
others,  and  useful  to  improve  the  quality  and 
diminish  the  cost  of  refined  sugar;  (3)  To  fur- 
nish protection  against  unlawful  combinations  of 
labor;  (4)  To  protect  against  inducements  to 
lower  the  standard  of  refining  sugar;  (5)  Gen- 
erally to  promote  the  interest  of  the  parties 
thereto  in  all  lawful  and  suitable  ways. 


*  The  United  States  vs.  The  E.  C.  Knight  Co.,  156 
U.  S.  1. 


V 


CHAPTER  II 

DEVELOPMENT   OF    TRUST    POLICIES 

AT  what  did  the  pioneers  in  the  creation  of 
this  new  instrument  of  industrial  and  com- 
mercial power  really  aim?  They  felt  and  saw 
that  something  was  essentially  lacking  in  that 
economic  order  which  more  or  less  regularly 
threw  the  commercial  system  into  crises,  panics, 
and  depressions.  Must  the  nations  go  on  for- 
ever running  the  bases  of  prosperity,  decline, 
depression,  and  recovery?  Or  was  there  some 
expedient  by  which  a  more  durable  equilibrium 
could  be  attained  as  a  persistent  feature  of  busi- 
ness policy?  If  so,  then  billions  of  built-up 
values  might  be  saved  and  the  worst  curse  of 
modern  commerce  eliminated.  This  was  pre- 
eminently the  economic  peril  of  America.  And 
a  task  of  such  proportions  was  worthy  of  the 
best  spirit  and  purpose  to  be  found  in  the 
leadership  of  business  and  the  statesmanship  of 
politics.  And  whoever  might  find  a  cure  would 
be  entitled  to  the  gratitude  of  mankind. 

1.     Consolidation  for  Price  Control 

This   was   in   fact  the  main  purpose  in   the 
formation   of  the  many  price-controlling   con- 
solidations   by    which    the    country's    industries 
14 


Development  of  Trust  Policies          15 

increased  in  capitalization  and  productive  out- 
put while  diminishing  the  number  and  the  size 
of  the  industrial  units.  For  their  own  salvation 
it  became  necessary  to  set  up  some  system  by 
which  to  prevent  healthy  competition  from  de- 
generating into  predatory  rivalry,  with  all  its 
waste  of  wealth  and  impairment  of  investing 
confidence.  It  is  true  that,  in  the  effort  to  escape 
one  evil,  occasion  might  be  given  to  bring  on 
another.  Consolidation  into  larger  units  bore 
with  it  the  seeds  of  monopoly.  But  for  the  time 
being  the  cure  was  all-important,  not  the  re- 
moter consequences.  After  the  panic  of  1893  it 
was  not  so  much  a  question  of  law  as  one  of  life 
for  the  majority  of  business  corporations.  Sal- 
vation lay  in  agreeing  by  common  consent  not 
to  do  certain  things,  such  as  cutting  one  an- 
other's throats,  commercially  speaking.  In  their 
distress  there  was  practically  no  enforcement  of 
the  anti-trust  law.  In  fact,  the  tendency  to 
mitigate  the  evils  of  an  undermining  rivalry 
dates  much  farther  back. 

Concentration  on  the  part  of  leading  indus- 
tries had  become  evident  after  the  panic  and 
depression  of  1873.  The  census  of  1880  showed 
that  in  the  manufacture  of  textiles  the  number 
of  establishments  was  at  its  maximum  in  1870, 
remained  about  stationary  between  1880  and 
1890,  while  the  total  of  employes  and  value  of 
products  increased  rapidly.  Cotton  mills  num- 
bered exactly  one  hundred  less  in  1890  than  in 


16  Trusts  and  Competition 

1880.  Woolen  mills  were  nine  hundred  and 
sixty-seven  less  in  1890  than  in  1870,  although 
their  product  had  meanwhile  increased  over  fifty 
per  cent  and  the  number  of  employes  nearly  the 
same.  Within  this  same  period,  in  which  all 
textile  establishments  decreased  seven  hundred 
and  seventy-six  in  number,  the  average  number 
of  employes  in  each  establishment  had  risen  from 
57.4  in  1870  to  124.4  persons  in  1890.  In  1880 
the  iron  and  steel  mills  numbered  1,005,  against 
645  in  1890,  a  decrease  of  360  establishments 
in  a  decade,  or  thirty-six  per  cent,  while  the 
average  number  of  employes  per  establishment 
rose  sixty-eight  per  cent.  In  the  making  of 
agricultural  implements,  1,943  plants  were  in 
existence  in  1880,  but  only  910,  'or  less  than 
half,  a  decade  later;  yet  the  average  output  of 
each  establishment  nearly  trebled  in  this  period. 
The  form  which  these  consolidations  took,  it 
is  well  known,  was  at  first  only  that  of  a  larger- 
sized  establishment.  That  was  soon  followed  by 
the  manufacturing  industry,  as  in  the  iron  and 
steel  trade,  bringing  under  one  management  its 
raw  material,  supplies,  and  transportation;  or, 
by  retailing  their  own  product,  as  in  the  boot 
and  shoe  industry.  Neither  of  these  forms  really 
embodied  the  "  trust "  idea.  That  came  with  the 
era  of  agreements  between  different  establish- 
ments in  the  same  industry  to  operate  their 
plants  as  one  enterprise,  or  under  some  common 
control  under  which  the  different  units  were 


Development  of  Trust  Policies          17 

placed  in  the  hands  of  a  trustee  or  group  of 
trustees  in  exchange  for  certificates  in  proportion 
to  their  general  interest  in  the  consolidation.  It 
was  this  divorcing  of  corporate  control  from 
ownership  by  surrender  of  voting  power  to  more 
or  less  monopolistic  hands  that  made  of  the 
"trust"  form  of  concentration  a  unique  prob- 
lem in  America's  industrial  evolution. 

There  was  often  a  measure  of  compulsion  in 
this  surrender  —  a  compulsion  born  of  fear  of 
ruin  by  cut-throat  competition  then  so  common. 
A  threat  to  duplicate  or  bankrupt  the  plant  of 
the  reluctant  proprietor  introduced  a  species  of 
terrorism.  "Founders  of  trusts  [wrote  Prof. 
W.  F.  Willoughby  at  the  time]  have  not  been 
content  with  the  advantages  which  the  superior 
organization  of  a  large  establishment  ensures, 
but  have  sought  to  increase  them  by  arbitrarily 
fixing  prices,  not  as  dictated  by  the  cost  of  pro- 
duction and  competitive  influence,  but  by  what 
the  public  can  be  made  to  pay.  Thus,  while  the 
formation  of  trusts  is  undoubtedly  dictated  by 
the  desire  to  cheapen  production,  the  chief  object 
in  view  is  to  regulate  the  prices  that  will  be 
obtained  for  their  products  by  establishing  a 
monopoly  and  controlling  the  market."  * 

2.    Combination  by  Rate  Control 

How  largely  railway  rate  discriminations  laid 
the  foundation  for  some  of  the  best  known  trusts 

*  The  Yale  Review,  May,  1898. 


18  Trusts  and  Competition 

is  clearly  disclosed  in  the  public  records  of  the 
Standard  Oil  Company.  Chiefly  by  advanta- 
geous freight  rates,  among  other  causes,  between 
1870  and  1877,  when  its  pipe  lines  rendered 
it  practically  independent  of  the  railroads,  the 
Standard  enhanced  its  proportion  of  the  coun- 
try's oil  business  from  four  to  ninety-five  per 
cent  of  the  total.  The  completeness  of  its 
mastery  of  the  freight  rate  situation  is  revealed 
in  nothing  more  fully  than  in  its  famous  South 
Improvement  Company's  contract  of  January 
18,  1872,  with  the  Pennsylvania,  the  New  York 
Central,  and  the  Erie  railroad  companies. 

Those  were  the  days  of  chaos  in  both  railway 
rates  and  oil  prices,  and  it  was  the  cut-throat 
rivalry  among  carriers  that  made  possible  that 
pooling  contract.  By  its  terms  the  South  Im- 
provement Company  of  Pennsylvania  was  to  get 
rebates  on  all  of  its  own  oils  or  oil  products 
shipped,  while  the  railroads  wrere  to  collect  full 
rates  from  other  shippers,  paying  the  difference 
to  the  South  Improvement  Company.  The  con- 
tract was  not  in  effect  a  full  month  before  the 
railroads  publicly  cancelled  it  in  response  to  an 
irresistible  storm  of  business  protest.  The 
Pennsylvania  legislature  summarily  revoked  the 
oil  company's  charter  within  less  than  a  year 
from  the  date  of  incorporation. 

Yet  the  conditions  were  there  which  gave  the 
largest  of  the  oil  industries  its  opportunity  for 
ascendency.  It  secured  and  to  a  great  extent 


Development  of  Trust  Policies          19 

maintained  it  (1)  by  taking  advantage  of  the 
insolvency  of  the  smaller  refineries ;  (£)  by  secur- 
ing discriminating  freight  rates  in  other  ways; 
and  (3)  by  welding  together  six  western  and 
eastern  companies  into  the  Standard  "Alliance" 
(1872),  officially  known  as  the  Central  Associa- 
tion of  Refineries,  of  which  John  D.  Rockefeller 
was  president.  This  so-called  "Alliance  "  f ormed 
the  basis  of  the  Standard  ten  years  later,  when 
it  definitely  took  the  form  of  the  trust.  It  was 
a  sort  of  cooperative  understanding  among  lead- 
ing stockholders.  The  companies  represented 
ceased  to  be  competitive  with  one  another  in  the 
sense  of  striving  to  undersell  one  another.  They 
continued  to  be  competitors  in  the  sense  that 
each  strove  to  show  at  the  end  of  the  year  the 
best  results  in  making  the  best  product  at  low 
cost.  From  time  to  time  new  persons  and  addi- 
tional capital  were  taken  into  this  association. 
Whenever  and  wherever  a  man  showed  himself 
skillful  and  useful  in  any  branch  of  the  business, 
he  was  sought  after.  As  business  increased,  new 
corporations  were  formed  in  various  states  in  the 
same  interest,  some  as  trading  companies,  some 
as  manufacturing  companies.  This,  in  bare  but 
lucid  outline,  is  the  rise  of  one  of  the  pioneer 
trusts  in  the  great  American  group,  as  portrayed 
by  one  of  its  ablest  exponents. 

Here  was  business  genius:  (1)  Competition 
was  brought  within  fruitful  limits,  as  among 
members  of  the  "Alliance;"  (2)  Productive 


£0  Trusts  and  Competition 

efficiency  was  the  criterion  of  success;  (3)  Spe- 
cial ability  was  everywhere  recognized  and  en- 
couraged ;  (  4  )  Self -extension  over  new  territory 
enabled  the  small  group  of  loyal  coworkers  each 
to  push  business  into  new  fields  without  losing 
any  ground  in  the  old. 

With  the  advent  of  pipe  lines  the  Standard  Oil 
"Alliance"  found  a  new  instrument  of  forcing 
home  its  primacy.  They  were  the  most  potent 
means  of  private  monopoly  until  declared  com- 
mon carriers  in  1914.  These  lines  originally 
connected  producing  wells  with  the  railroads  at 
the  nearest  stations.  They  were  thus  short 
freight  feeders  to  the  railways.  Such  control 
of  freight  resulted  in  a  contract  whereby  the 
Standard's  united  lines  secured  a  rebate  of 
twenty-two  cents  in  1874  on  oil  delivered.  After 
three  years  the  Standard,  through  its  United 
Pipe  Line  Company,  had  secured,  in  the  contract 
of  October  17,  1877,  with  the  Pennsylvania 
Railroad,  a  monopoly  of  the  production  and 
transportation  of  oil  in  the  United  States. 

3.    Legitimate  Aims  in  Trust  Policy 

The  wastes  of  destructive  competition  no 
doubt  drove  most  of  the  industrial  trusts  to 
seek  a  more  rational  form  of  organization.  The 
problem  confronting  business  managers  in  manu- 
facturing was  that  of  putting  limits  to  expendi- 
tures in  some  directions  in  order  to  insure  solv- 


Development  of  Trust  Policies          21 

ency  and  development  in  others.  In  a  large 
number  of  cases  it  was  a  question  of  the  ex- 
hausted capital  being  restored  and  increased  by 
consolidating  into  one  strong  organization  a 
number  of  smaller  plants,  some  of  which  were 
not  strong  financially  or  even  industrially.  Such 
was  the  state  of  the  shipbuilding  industry  when 
the  iU-fated  United  States  Shipbuilding  Com- 
pany was  formed.  However  defective  its  financ- 
ing, the  broad-gauged  principles  which  impelled 
its  public-spirited  promoters  are  typical  of  the 
aims  that  led  to  some  of  these  combinations.  As 
stated  by  Rear- Admiral  F.  T.  Bowles  in  the  offi- 
cial report*  they  were  as  follows: 

( 1 )  Each  concern  builds  that  for  which  it  is 
best  fitted  and  equipped,  or  that  which  its  char- 
acter, location,  and  labor  can  accomplish  most 
economically. 

(2)  Structural  materials,  steel,  iron,  timber, 
etc.,   can  be  purchased   at  the  lowest   rates,   a 
prompt  supply  secured  at  points  where  it  is  most 
needed. 

(3)  The  technical  knowledge  of  design,  which 
comes  from  experience,  records,  and  data  of  each 
concern,  will  be  combined,  thus  giving  confidence 
to  customers  that  the  results  contracted  for  shall 
be  attained. 

(4)  The  healthy  professional  rivalry  of  the 
various  yards  can  be  utilized  to  produce  the  best 
result  in   design,   construction  and  administra- 

*  The  Truth  About  the  Trusts:   Part  III,  p.  337. 


Trusts  and  Competition 


tion,  without  the  disastrous  and  narrowing  de- 
vices of  destructive  competition. 

(5)  The  standardization  of  the  numberless  de- 
tails of  ship  fittings,  auxiliaries  and  appliances, 
which  are  now  almost  as  various  and  incongruous 
in  design  as  they  are  in  number,  and  their  pro- 
duction in  quantity  by  those  best  qualified,  would 
produce  enormous  economies. 

(6)  It  will  be  possible  to  effect  great  econo- 
mies by  the  separation  of  warships  and  merchant 
construction  into   different  establishments,  thus 
avoiding  the  difficulties  of  organization  and  in- 
creased cost  of  radically  different  types  of  con- 
struction upon  adjoining  ships. 

(  7  )  The  better  organization  and  management 
of  the  individual  concerns  would  be  a  necessity 
and  direct  result  of  this  incorporation. 

4>    The  Equilibrium  of  Business 

One  of  the  most  difficult  problems  in  the  busi- 
ness world  is  to  prevent  by  legitimate  means 
those  wide  fluctuations  of  prices  which  work 
havoc  to  trade  and  industry.  To  maintain  some 
degree  of  normality  in  trade  conditions  so  as  to 
insure  average  profits  for  average  abilities  and 
opportunities,  some  degree  of  foresight  and 
common  knowledge  of  conditions  are  necessary. 
Wherever  the  law  is  strict  in  its  application  to  re- 
straints of  trade  and  monopoly,  the  methods  of 
limiting  these  injurious  price  swings  are  neces- 
sarily few.  Whatever  policy  might  be  adopted 


Development  of  Trust  Policies          23 

must  work  itself  out  within  rather  narrow  legal 
and  equitable  limitations.  How  the  United 
States  Steel  Corporation,  with  fifty  per  cent  of 
the  domestic  steel  business  of  the  country,  steered 
its  way  within  these  limits  was  stated  by  Judge 
Elbert  H.  Gary  before  the  House  Committee 
in  the  steel  investigation.  The  company  was 
confronted,  he  said,  with  two  propositions.  "  It 
had  no  right  to  endeavor  to  prevent  reductions 
in  prices,  or,  in  other  words,  to  maintain  the 
equilibrium  of  business  and  maintain  prices  sub- 
stantially level,  or  at  least  free  from  sudden  and 
violent  fluctuations,  by  means  of  any  sort  of  an 
agreement,  express  or  implied.  We  had  no  law- 
ful right,  as  I  understand,  to  make  any  agree- 
ment, express  or  implied,  directly  or  indirectly, 
with  our  competitors  in  business  to  maintain 
prices,  notwithstanding  we  were  receiving  letters 
daily  from  the  j  obbers  all  over  the  country,  beg- 
ging us,  if  possible,  to  prevent  demoralization 
and  to  prevent  decrease  in  prices  which  should 
mark  down  their  inventories  and  in  many  cases 
subject  them  to  the  risk  of  bankruptcy.  On  the 
other  hand,  considering  this  same  question  of 
sustaining,  so  far  as  practicable,  the  equilibrium 
of  trade,  we  believed  we  had  no  moral  or  legal 
right  to  become  involved  in  a  bitter  and  de- 
structive competition,  such  as  used  to  follow  any 
kind  of  depression  in  business  among  the  iron 
and  steel  manufacturers,  for  the  reason  that  if 
we  should  go  into  competition  of  that  kind  it 


Trusts  and  Competition 


meant  a  war  of  the  survival  of  the  fittest;  it 
meant  that  a  large  percentage,  as  in  old  times, 
of  the  people  engaged  in  the  manufacture  of 
steel  would  be  forced  into  bankruptcy,  for  many 
reasons  —  their  facilities  for  manufacture  were 
not  so  good,  their  cost  of  production  was  high, 
their  equipment,  their  organization,  their  de- 
creased ownership  of  some  of  the  raw  products 
and  other  things  of  that  kind  which  enter  into 
the  cost  of  production,  would  place  them  at  a 
disadvantage,  and  therefore  it  was  believed,  by 
me  at  least,  that  it  was  not  for  the  best  interests 
of  the  manufacturer  generally,  or  for  their  cus- 
tomers, who  desired  stability  as  opposed  to  de- 
moralization and  wide  fluctuations,  or  for  the 
employes  of  the  various  corporations  through- 
out the  country,  who  desired,  so  far  as  possible, 
steady  work  —  continuous  work  at  the  best 
prices  ;  and  a  wide,  sudden,  extreme  lowering 
of  prices  necessarily  meant  reduction  in  wages."  * 
Every  sharer  in  the  distribution  of  the  prod- 
ucts of  industry  is  vitally  interested  in  the 
successful  elaboration  of  a  policy  that  will  set 
reasonable  limits  to  price  fluctuations.  For, 
whatever  each  participant  gets  comes  out  of  the 
selling  price.  Under  unbalanced  relations  of 
supply  and  demand,  long-term  contracts  become 
impolitic,  if  not  impossible.  Uncertainty  rules 
where  foresight  should  prevail.  The  owner  of 
natural  resources,  the  lender  of  capital,  the 
*  Hearings,  62nd  Cong.,  2nd  Sess.,  1911-12. 


m 


Development  of  Trust  Policies  25 

wage-earner,  and  the  business  manager  —  all  of 
these  are  a  unit  in  wanting  to  find  some  way  out 
of  the  chaos  of  unrestrained  competition.  There 
is,  in  theory  at  least,  a  line  within  which  com- 
petition is  both  free  and  fair,  and,  therefore,  con- 
structive; a  line  beyond  which  lies  economic 
wreckage  or  monopoly.  It  is  to  the  interest  of 
every  member  of  society  that  such  a  line  of 
demarkation  be  discovered  and  defined,  because 
it  marks  the  boundary  between  economic  life 
and  death,  between  civilization  and  relapse  to  / 
savagery. 

5.     Extending  Control  Over  Railway  Domain 

There  is  no  more  instructive  development  in 
trust  policy  within  recent  decades  than  that  in 
which  the  Supreme  Court  extends  the  Trust  Act 
over  the  domain  of  railway  transportation.  Com- 
binations in  railway  transportation  took  three 
particular  forms  in  the  effort  to  regulate  com- 
petition and  maintain  rates.  These  were  (1) 
pooling,  which  the  Commerce  Act  of  1887  for- 
bade, (2)  community  of  interest,  which  in  due 
time  was  superseded  by  (3)  the  holding  com- 
pany. These  three  are  represented  in  the  three 
great  railway  anti-trust  cases  of  the  Trans- 
Missouri  Freight  Association,  the  Joint  Traffic 
Association,  and  the  Northern  Securities  Com- 
pany. 

In  the  earlier  years  of  the  act  it  was  taken  for 
granted  that  the  Trust  Act  of  1890  and  the 


26  Trusts  and  Competition 

Commerce  Act  of  1887  were  intended  to  cover 
two  mutually  exclusive  fields.  "  It  was  not  the 
intention  of  Congress  to  include  common  car- 
riers subject  to  the  Act  of  February  4,  1887, 
within  the  provisions  of  the  Act  of  July  2,  1890 
[affirmed  the  Circuit  Court  of  Kansas,  November 
28,  1892,  when  the  Trans-Missouri  Freight 
Association  case  first  came  up].  It  was  the  pur- 
pose of  Congress  [the  opinion  of  court  runs] 
to  remedy  a  very  different  evil  then  existing.  A 
number  of  combinations  in  the  form  of  trusts 
and  conspiracies  in  restraint  of  trade  had  sprung 
up  in  the  country  which  were  dangerous  to  its 
commercial  interests;  for  example,  the  steel-rail 
trust,  cordage  trust,  the  whiskey  trust,  the 
Standard  Oil  trust,  dressed  beef  trust,  the  school- 
book  trust,  the  gas  trust,  and  numerous  trusts 
and  combinations  which  threatened  to  destroy 
the  commercial  and  industrial  prosperity  of  the 
country.  These  trusts  assumed  the  absolute  con- 
trol of  the  various  corporations  entering  into 
them,  directing  which  of  the  constituent  mem- 
bers of  the  trust  should  continue  operations  and 
which  should  cease  doing  business;  how  much 
business  should  be  transacted  by  each,  what 
prices  should  be  charged  for  their  product,  and 
in  fact  had  the  power  to  direct  every  detail  of 
the  business  of  every  corporation  formed  in  the 
trust.  It  was  to  combinations  and  conspiracies 
of  this  sort  that  the  Act  of  July  2,  1890,  was 
directed." 


Development  of  Trust  Policies          27 

Upon  these  grounds  the  bill  was  dismissed, 
only  to  re-appear  on  appeal,  October  2,  1893,  in 
the  Circuit  Court  of  Appeals,  where  the  original 
court's  ruling  was  sustained.  Justice  Sanborn 
in  delivering  the  opinion  concluded:  "We  rest 
this  decision  on  the  ground  that,  if  the  anti-trust 
act  applies  to  and  governs  interstate  and  inter- 
national transportation  and  its  instrumentalities, 
the  contract  and  association  here  in  question  do 
not  appear  to  be  in  violation  of  it."  Thus  the 
Appellate  Court  assumed  the  possible  applica- 
bility of  the  Trust  Act  to  railway  business,  par- 
tially reversing  the  court  below  on  this  point. 
But  the  dissenting  opinions  of  District  Judge 
Shiras  went  farther  in  holding  that  if  the  Trust 
Act  applied  at  all,  the  Trans-Missouri  Freight 
Association  was  in  violation,  "  in  that  it  deprives 
the  public  of  the  benefit  of  free  competition 
between  the  associated  railway  companies."  Thus 
the  case  rested  until  the  appeal  to  the  Supreme 
Court  was  decided,  March  22,  1897.  The  re- 
versal here  of  both  of  the  lower  decisions  not 
only  resulted  in  making  the  Trust  Act  the  more 
general  and  comprehensive  of  the  two,  but  also 
in  removing  any  claim  of  inconsistency  between 
the  General  Trust  Act  and  the  Special  Commerce 
Act.  The  court  seemed  to  reason  with  a  tone  of 
apology  for  its  conclusion  in  the  Knight  case,  in 
which  the  Trust  Act  was  declared  not  to  apply 
to  monopolies  in  manufacturing,  but  to  restraints 
in  commerce.  To  have  now  reasoned  that  it  did 


Trusts  and  Competition 


not  apply  to  a  freight-line  pool  would  have  nulli- 
fied the  act  itself.  "All  combinations  which  are 
in  restraint  of  trade  Or  commerce  are  prohibited 
[declared  Associate  Justice  Peckham],  whether 
in  the  form  of  trusts  or  in  any  other  form  what- 
ever." A  broader  basis  for  correcting  commer- 
cial limitations  could  hardly  be  desired.  It  took 
nearly  seven  years  to  forge  out  this  result.  But 
the  process  did  not  stop  here.  The  Joint  Traffic 
Association  was  brought  under  the  same  ruling 
by  the  decision  of  October  24,  1898.  Here  the 
Supreme  Court  reversed  again  the  original  Cir- 
cuit Court,  which  held  that  the  agreement  in- 
volved did  not  include  a  pooling  offense  because 
the  earnings  of  the  separate  roads  were  left 
"  wholly  in  separate  channels." 

In  the  railway  sphere  another  long  step  for- 
ward in  extending  the  scope  of  the  Anti-Trust 
Act  came  with  the  Northern  Securities  suit. 
Here  the  ownership  of  two  competing  railroads 
was  transferred  to  a  third  New  Jersey  holding 
company  with  a  capital  stock  of  $400,000,000. 
This  subterfuge  not  only  took  the  control  of  the 
property  from  the  stockholders  as  owners,  but  it 
also  "destroyed  every  motive  for  competition 
between  two  roads  engaged  in  interstate  traffic, 
which  were  naturally  competitors  for  business, 
by  pooling  the  earnings  of  the  two  roads."  The 
decision  of  March  14,  1904,  moreover,  put  an 
end  to  the  practice  of  state  legislatures  charter- 
ing corporations  to  do  business  in  other  states 


Development  of  Trust  Policies  29 

in  restraint  of  interstate  commerce  against  the 
will  of  the  nation.  Its  effect  was  to  make  the 
Anti-Trust  Act  supreme  as  against  the  states 
throughout  the  country  as  a  whole.  And  one  of 
its  first  consequences  was  the  re-opening  of  the 
anti-trust  prosecution  of  the  New  Haven  railway 
system  in  dissolution  proceedings  involving  con- 
solidations of  one  hundred  and  eighty-nine 
companies. 


CHAPTER  III 

COMPETITION FAIR  AND  UNFAIR 

TT  7" HAT  is  there  in  the  methods  and  practices 
VV  of  the  American  trusts  that  from  their 
very  beginning  has  met  with  protest  and  de- 
mands for  relief  and  remedy  ? 

It  is  the  resort  to  unfair  methods  of  competi- 
tion as  a  means  of  forcing  combination  among 
corporations  to  the  extent  of  an  actual  or  poten- 
tial monopoly  of  more  or  less  completeness. 

The  line  of  demarkation  between  the  monopo- 
lizing trust  and  the  law-respecting  corporation 
lies  in  the  kind  of  competitive  treatment  it  gives 
in  business  relations  with  its  rivals.  The  method 
of  competition  which  causes  trade  and  industry 
to  revert  to  the  status  of  rapine  and  robbery  is 
outlawry  practiced  under  the  guise  of  corporate 
privilege.  The  competition  which  cooperates 
and  conforms  to  both  law  and  equity  alike  is  the 
type  destined  to  survive. 

The  modern  doctrine  of  fair  and  unfair  com- 
petition, as  developed  and  applied  in  its  larger 
scope  in  common  law  codes,  in  anti-trust  court 
decisions,  and  in  trade  ethics,  affords  the  via 
media  between  the  competition  which  crucifies 
and  that  which  is  constructive.  Both  unfair 
competition  and  private  monopoly  are  equally 
30 


Competition  —  Fair  and  Unfair          31 

immoral  and  anti-social.  The  former  has  no 
place  in  a  healthy  economic  system,  and  the  lat- 
ter can  not  be  tolerated  except  under  public 
regulation.  Unfair  competition  is  foul  play,  and 
it  can  never  serve  either  the  ends  of  private  pros- 
perity nor  those  of  the  public  weal.  Much  less 
ought  a  state,  whose  citizens  have  even  an  ordi- 
nary sense  of  honor,  knowingly  charter  corpora- 
tions to  play  unrestrained  the  role  of  economic 
highwaymen  throughout  sister  commonwealths. 
The  main  problem  of  trust  policy  is,  How  can 
we  prevent  unfair  methods  and  practices  in  com- 
petitive business  ?  The  answer  is,  By  abolishing 
monopoly,  or  the  hope  of  monopolj^_A 

In  applying  the  legal  rule  in  equity  to  unfair 
competition  —  a  rule  that  is  older  than  statute 
law  itself  —  a  broad  principle  of  business  integ- 
rity and  common  justice  has  been  developed,  out 
of  an  earlier  rule  respecting  the  rights  of  trade- 
marks, into  a  code  of  conduct  as  comprehensive 
as  the  relations  of  business.  Commenting  on 
this  wider  application  of  the  law  as  a  business 
principle,  H.  D.  Nims,  of  the  New  York  Bar, 
says: 

"  One  reason  for  the  growth  of  the  law  of 
unfair  competition  is  probably  to  be  found  in 
the  effects  of  the  delay  incident  to  suits  at  law 
for  damages.  Business  lost  and  credit  impaired 
by  misrepresentation  or  threats  made  by  mali- 
cious or  unscrupulous  competitors  —  such  losses 
cannot  be  compensated  for  by  damages  received 


Trusts  and  Competition 


at  the  end  of  a  tedious  suit  at  law,  occupying 
perhaps  two  or  three  years.  Any  adequate  rem- 
edy must  stop  the  injurious  acts  instanter,  and 
that  can  be  afforded  only  by  use  of  the  writ  of 
injunction. 

"  The  law  of  unfair  competition  has  developed 
in  part  also  in  response  to  a  general  feeling  that 
the  honest  and  fair-dealing  merchant  is  entitled 
to  the  fruits  of  his  skill  and  industry,  and  must 
be  protected  against  loss  caused  by  fraudulent 
and  unfair  methods  used  by  business  rivals.  It 
is  a  recognition  by  the  courts  of  the  duty  to  be 
honest  and  fair  in  all  relations  of  business  life. 
This  is  one  of  the  most  healthful  signs  of  the 
times.  The  gradual  judicial  development  of  this 
doctrine  is  an  embodiment  of  the  principles  of 
sound  common  sense,  business  morality."*  \ 


1.    Unfair  Corporate  Competition 

Inasmuch  as  unfair  competition  has  been  one 
of  the  main  instruments  by  which  combinations 
have  achieved  or  exercised  monopoly,  it  is  highly 
important  that  this  aspect  of  the  trust  movement 
be  clearly  appreciated.  To  begin  with,  it  is  not 
of  the  ordinary  type  of  rivalry  between  indi- 
vidual buyers  and  sellers  in  the  same  market. 
Nor  is  it  the  competition  of  the  copartnership, 
which  dissolves  with  the  death  or  retirement  of 
a  member.  The  unfair  type  of  competition  is 

*  The  Law   of    Unfair   Business   Competition,   H.   D. 
Nims.    Baker,  Voorhis  &  Co.,  New  York. 


Competition  —  Fair  and  Unfair          33 

that  of  the  compounded  corporation  wherein  the 
individual  disappears  in  the  aggregate  —  an 
aggregate  invested  with  a  maximum  of  semi- 
public  rights  and  divested  of  all  but  a  minimum 
of  personal  responsibility.  Such  was  the  North- 
ern Securities  Company.  Give  to  this  corporate 
imperium  in  imperio  the  power  over  the  sources 
of  credit  and  capital;  give  it  continuity  of 
existence,  unity  of  control  from  within,  and 
free  access  to  a  home  market  of  75,000,000  to 
100,000,000  consumers  and  investors,  and  we 
have  the  actual  corporate  unit  in  which  lies  the 
kernel  of  the  trust  problem  in  the  United  States. 
This  compound  unit  of  competition  has  de- 
veloped from  the  voluntary  associations  known 
as  pools,  based  on  the  good  faith  of  members, 
through  the  legal  consolidation  of  several  cor- 
porations, known  as  the  trust  proper,  into  the 
holding  company.  As  state  and  nation  outlawed 
pooling  methods  of  controlling  supply,  prices, 
and  rates,  they  took  refuge  in  the  trust  scheme 
of  combining  corporate  competitors.  This 
scheme  of  compounding  competitive  capacity 
spread  rapidly  as  its  superior  service  in  over- 
coming single  corporations  became  known.  At 
last  the  holding  corporation  came  as  the  refine- 
ment of  corporate  compounding,  destroying  still 
more  completely  the  competitive  equilibrium 
which,  both  in  law  and  economics,  had,  until  the 
rise  of  the  trust,  always  been  regarded  as  an 
axiom  of  public  policy. 


Trusts  and  Competition 


From  this  it  may  rightly  be  seen  that  the  domi- 
nant form  of  unfair  competition  is  to  be  found 
in  the  practices  of  the  combination  of  two  or 
more  competing  corporations.  Paradoxical  as 
this  may  seem,  it  is  elemental  that  if  two  com- 
peting corporations  combine,  that  very  act  puts 
every  other  single  corporation  in  the  same  line 
of  trade  at  a  disadvantage,  resulting  in  an  in- 
equality which  is  economically  and  legally  unfair. 
It  is  unfair  because  the  law  which  gave  birth  to 
the  corporate  unit  contemplated  competition  by 
numerous  independent  units  rather  than  compe- 
tition by  combination.  It  is  unfair  in  economic 
principle  and  practice,  because  our  whole  theory 
of  the  competitive  state  rests  on  the  assumption 
of  something  like  equality  of  opportunity  and 
responsibility  among  many  different  agencies 
making  for  material  progress.  For  it  is  rivalry 
on  something  like  equal  terms  that  develops 
leadership,  liberty,  and  economic  power  to  best 
advantage  among  the  many,  and  diffuses  the 
largest  measure  of  mastery  among  the  mass  of 
producers. 

2.    Coercion  by  the  Corporate  Crowd 

Various  kinds  of  force  are  recognized  in  law 
as  coming  under  the  category  of  unfairness  in 
trade  methods.  Among  these  are  frauds,  mis- 
representation, and  intimidation.  ".That  is 
held  fair,"  says  Wyman,  speaking  of  Types  of 
Unfair  Competition,  "which  the  community  re- 


Competition  —  Fair  and  Unfair          35 

gards  as  consistent  with  its  safety ;  that  is  held 
unfair  which  the  state  considers  dangerous  to  its 
peace."  Causing  another  to  break  an  existing 
contract,  libelous  statements  to  win  away  cus- 
tomers, violent  and  malicious  acts  to  injure  an- 
other's occupation;  these  are  among  the  acts 
disallowed  by  law.  "The  idea  in  modern  com- 
merce is  that  to  compete  as  one  wills  is  not  an 
absolute  right  in  our  law,"  says  the  same  author- 
ity just  quoted.  "  On  the  contrary,  competition 
is  only  a  thing  permitted  by  the  state  when  its 
operation  is  for  the  best  interest  of  established 
society,  forbidden  if  it  is  carried  on  under  cir- 
cumstances prejudicial  to  the  social  order.  It 
cannot  be  said  that  where  one  man  has  an  abso- 
lute right  to  compete  as  he  chooses,  therefore 
ten  men  acting  together  have  the  same  right  to 
compete  as  they  choose.  By  this  theory,  when- 
ever the  operation  of  a  combination  is  proved  to 
be  detrimental  to  the  best  interests  of  society,  its 
course  will  be  held  illegal." 

If  it  be  asked  what  distinguishing  quality 
marks  off  fair  from  unfair  competition  in  the 
methods  and  practices  of  trust  policy,  it  is  prop- 
erly answered  that  it  lies  essentially  in  the 
economic  pressure  which  combination  tends  to 
exercise  against  the  simple  corporation  acting 
single-handed.  It  consists  in  the  application  of 
force  which  might  not  be  feared  if  exercised,  or 
even  threatened,  by  a  simple  corporation  against 
one  of  like  kind ;  but  which  would  become  effec- 


Trusts  and  Competition 


tive  if  a  dozen  or  more  corporations  acted  as  a 
unit  against  an  individual  company.  When  the 
combination  comes  to  deal  with  the  individual  on 
a  basis  of  force  rather  than  of  freedom,  then 
economic  liberty  is  eliminated  and  fair  competi- 
tion gives  place  to  an  unequal  struggle  between 
a  united  group  and  divided  individuals.  Unfair 
competition  is  therefore  a  manifestation  of  force 
by  a  crowd  of  competitors  acting  as  a  combina- 
tion; and  this  very  privilege  of  combination 
bespeaks  submission  or  surrender  on  the  part  of 
the  unmerged  unit. 

Nor  is  it  always  necessary  that  the  economic 
pressure  to  be  unfair  in  its  effects  should  take 
the  form  of  actually  applied  coercion.  The 
Pittsburgh  Glass  Company's  type  of  coercive 
brutality  toward  importers  is  possibly  seldom 
resorted  to  for  this  purpose.  The  corporate 
crowrd,  or  predatory  trust,  achieves  its  unfair 
purpose  quite  as  certainly  and  with  less  hazard 
if  the  pressure  be  merely  potential,  not  actual, 
and  therefore  not  easily  provable  in  court  by 
any  overt  act.  There  is  a  coercion  as  inevitable 
as  fate,  but  far  too  subtle  in  the  policy  of  the 
marauding  trust  to  leave  any  record  of  its  prowl- 
ings.  It  may  take  the  form  of  a  passing  sug- 
gestion, of  a  casual  association,  of  a  hint  too 
vague  ordinarily  to  deserve  notice.  But  it  is 
none  the  less  the  identical  pressure  which  has 
driven  hundreds  of  independent  corporations 
into  the  coils  of  the  combination. 


Competition  —  Fair  and  Unfair          37 

It  is  this  unfair  struggle  that  imperils  the 
fundamental  status  of  free  economic  institutions. 
It  is  this  very  potentiality  in  combination,  this 
very  monopolizing  capacity,  which  makes  it  un- 
safe for  the  state  whose  economic  life  is  depend- 
ent on  free  institutions  for  the  performance  of 
its  economic  work,  to  tolerate  for  a  moment  the 
private  combination  which  has  power  to  paralyze 
whatever  does  not  yield  to  its  pretense  to 
sovereignty. 

3.    Is  Big  Business  Unfair? 

Respect  for  fair  competitive  conditions  in 
business  is  not,  however,  a  virtue  that  depends 
on  the  size  of  the  concern.  The  individual  cor- 
poration is  no  more  or  less  honorable  than  the 
combination  in  this  respect.  Size  in  itself  has 
ordinarily  no  relation  to  the  character  of  com- 
petitive conduct.  Nevertheless,  where  there  are 
fifty  corporations  doing  the  business  of  the 
country  at  a  given  time,  they  are  all  more  or 
less  on  the  alert  as  to  each  other's  methods ;  and 
that  in  itself  is  a  potent  influence  in  setting 
limits  to  unfair  trading.  On  the  contrary, 
where  a  single  combination,  as  in  the  American 
Sugar  Refining  Company,  had  absorbed  ninety- 
five  per  cent  of  the  sugar  refining  of  the  country, 
competitive  restraints  had  been  wholly  broken 
down.  Its  dominance,  amounting  to  monopoly, 
had  become  such  as  to  leave  the  leviathan  to  be 
a  law  unto  itself  in  the  treatment  of  the  pro- 


38  Trusts  and  Competition 

ducers  of  the  other  five  per  cent  of  the  total 
supply  to  the  consuming  public. 

The  manifest  object  of  unfair  trading  is  to 
obtain  control  of  producing  and  distributing 
the  supply  of  a  commodity.  This  misuse  of  the 
powers  and  privileges  of  the  corporation  has 
taken  numerous  forms  of  misdemeaning.  One 
of  the  oldest,  yet  most  unsound,  of  unfair  busi- 
ness practices  by  big  business  is  the  exclusive 
contract.  Under  the  trust  regime  this  had  had 
a  wide  vogue  until  it  came  to  be  recognized  as  a 
mistake,  on  general  business  principles.  It  less- 
ened the  zeal  of  the  retailer  in  pushing  the  goods 
concerned,  and  it  wounded  his  sense  of  freedom 
by  coercing  him  into  a  distasteful  contract.  It 
caused  him  to  lose  customers  who  preferred  other 
goods.  It  prejudiced  the  consumer  against  the 
goods  which  the  manufacturers  then  attempted  to 
force  upon  him.  Consequently  such  far-seeing 
trusts  as  the  American  Tobacco  Company  aban- 
doned the  exclusive  contract  as  economically  bad 
business  long  before  litigation  to  dissolve  it  had 
begun. 

Where  size  counts  most  in  competition  among 
un equals  is  in  the  exhausting  effect  of  under- 
selling a  few  special  brands  which  comprise  the 
full  line  of  the  smaller  rival's  output,  although 
only  a  small  part  of  the  trust's  output.  Trusts 
have  been  known  to  devise  a  special  brand  to  sell 
under  cost  in  a  territory  served  by  a  successful 
small  company  which  has  only  one  brand  to  sell. 


Competition  —  Fair  and  Unfair         39 

Big  corporations  have  other  resources  than  the 
exclusive  contract  or  the  refusal  to  sell  to  some 
arid  not  to  others,  in  dealing  with  small  rivals. 

"  Sometimes  they  make  many  kinds  of  goods, 
while  a  rival  makes  only  a  few.  If,  then,  a  trust 
cuts  prices  on  a  few  varieties  which  its  rival 
makes,  but  charges  a  large  profit  on  the  other 
kinds,  it  can  make  money  itself  while  it  is  exter- 
minating its  opponent.  The  small  producer 
must  meet  the  cut  in  prices  on  all  the  goods  he 
sells,  and  that  will  soon  make  an  end  of  him. 
When  cut-throat  competition  takes  the  shape  of 
putting  prices  very  low  on  one  or  two  things, 
which  are  all  a  small  manufacturer  makes,  it  is 
not  necessary  to  resort  to  the  factor's  agreement 
at  all."  * 

4.    Legal  Limits  of  Fair  Competition 

From  the  legal  standpoint  there  is  much  de- 
batable ground  as  to  what  is  allowable  and  what 
is  not  in  trust  policies.  But  the  so-called  "  twi- 
light zone"  has  faded  out  rapidly  during  the 
past  few  years.  Prof.  Bruce  Wyman  sum- 
marizes the  results  as  follows:  "Policies  which 
have  been  used  in  the  past  to  get  control  of  the 
market,  the  illegality  of  which  is  beyond  argu- 
ment, include  ( 1 )  rebates  from  the  railroads,  to 
which  many  a  trust  owes  its  dominance;  (2)  the 
abuse  of  the  patent  laws  by  getting  out  lists  of 
patents  as  the  basis  for  lawsuits  against  com- 

*  The  Problem  of  Monopoly,  pp.  35-36. 


40  Trusts  and  Competition 

petitors;  (3)  establishment  of  a  bogus  compet- 
ing concern;  (4)  bribery  of  employes,  to  get  at 
trade  secrets."*  To  these  should  be  added  an- 
other: (5)  selling  to  a  subsidiary  distributor 
at  less  than  to  other  jobbers,  as  in  case  of  the 
American  Tobacco  Company  to  the  Manhattan 
Tobacco  Company.  No  trade  ethics  can  justify 
such  policies.  There  are  others  rather  more  de- 
batable, by  which  many  trusts  have  gained  their 
dominating  position,  the  illegality  of  which,  as 
Wyman  points  out  (Annals,  etc.,  July,  1912), 
has  not  been  so  clear.  They  include  ( 1 )  refusal 
to  sell  to  retailers  who  persist  in  buying  any- 
thing of  a  rival  manufacturer;  (2)  making  a 
lower  price  in  certain  localities,  where  incipient 
competition  has  appeared;  (3)  imposing  terms 
in  leases  that  the  lessee  shall  not  buy  anything 
of  the  same  sort;  and  (4)  fixing  prices  at  which 
the  product  may  be  re-sold.  The  combinations 
which  are  keeping  their  position  by  these  pol- 
icies have  no  economic  justification;  and  for 
them  there  can  be  no  defense. 

It  is  evident,  from  what  has  thus  far  been 
said,  that  neither  in  trade  circles  nor  in  business 
ethics  is  there  entire  clearness  as  to  what  prac- 
tices are  regarded  as  against  sound  commercial 
and  industrial  policy.  In  the  zeal  for  profits 
standards  of  trade  demeanor  have  not  been  de- 

*  Control  of  the  Market:  A  Legal  Solution  of  the 
Trust  Problem,  Bruce  Wyman.  Moffat.  Yard  &  Co., 
New  York. 


Competition  —  Fair  and  Unfair          41 

fined  nor  developed  as  they  should  have  been  by 
the  cooperation  of  the  ones  directly  interested. 
Trades  having  failed  to  develop  their  coopera- 
tive capacities,  the  burden  of  demarking  the 
limits  of  fair  competition  has  fallen  to  the  equity 
procedure  of  our  courts.  Scattered  through 
these  records  of  twenty-four  years  may  be  found 
the  essentials  of  a  substantial  code  of  fair  com- 
petitive practice. 

It  is  surprising  to  note  how  insignificant  has 
been  the  actual  contribution  to  positive  criteria 
of  trade  conduct  by  the  trusts  during  the  thirty 
years  of  their  existence.  Yet  they  have  afforded 
the  occasion  for  the  courts  to  re-define  and  assert 
anew  the  essentials  of  fairness  in  common  law 
and  in  current  morals.  By  this  means,  mainly 
through  the  use  of  the  injunction,  there  has  been 
elaborated  a  series  of  forbidden  practices  in  spe- 
cific cases.  In  this  way  the  higher  courts  have 
come  to  enumerate  the  more  important  of  unfair 
conditions  of  competition.  As  lower  courts  came 
to  apply  the  same  prohibitions  the  limits  of  fair 
trading  became  more  clearly  re-established. 

5.  Court  Control  of  Unfair  Competition 

In  the  use  of  the  injunction  to  eliminate  un- 
fair and  restore  fair  rivalry  two  steps  have  gen- 
erally been  necessary.  Agreements  found  to  be 
in  restraint  of  free  and  open  competition  have 
been  cancelled,  and  specific  orders  issued  against 
enumerated  practices  and  relations.  The  Alumi- 


Trusts  and'  Competition 


num  Company  of  America,  for  instance,  was 
ordered  to  refrain  from  any  contract  by  which 
control  of  necessary  materials  for  manufactur- 
ing aluminum  could  prevent  the  purchasing  of 
such  materials  "  of  good  quality  in  the  open  mar- 
ket in  free  and  fair  and  open  competition."  The 
Pacific  Coast  Plumbing  Supply  Association  of 
twenty-four  corporations  and  sixty  individuals, 
wherein  the  court  found  the  trade  bound  hand 
and  foot  by  forbidden  restrictions,  was  another 
flagrant  instance.  So  arbitrary  had  this  small 
junta  of  tradesmen  become  that  the  court  found 
it  necessary  to  forbid  its  members  "  from  com- 
municating with  a  manufacturer  or  dealer  to  in- 
duce him  not  to  sell  to  persons  not  members  of 
the  association  or  not  conforming  to  the  defini- 
tion of  a  jobber  given  in  the  blue  book."  Still 
more  recently  in  the  Yellow  Pine  Lumber  Manu- 
facturers' Association  the  list  of  prohibitions 
included  one  even  against  holding  membership 
in  the  organization.  These  restrictions  may 
seem  to  cut  very  close  to  the  quick  of  the  funda- 
mental right  of  communication  and  of  the  free- 
dom of  association.  Yet  they  illustrate  the 
length  to  which  legal  authorities  go  in  the  at- 
tempt to  reconstruct  competitive  conditions  on  a 
fair  and  just  basis  to  all  within  the  trade. 

Probably  as  definite  and  comprehensive  a  state- 
ment of  what  competitive  lawlessness  does  is  to 
be  found  in  the  injunction  of  the  Supreme  Court 
against  practices  of  the  Central  West  Publishing 


Competition  —  Fair  and  Unfair          43 

Company  and  the  Western  Newspaper  Union. 
These  two  concerns  practically  controlled  the 
supply  of  ready-print  matter  and  stereotype 
plates.  As  defendants  they  were  enjoined  against 
combining  with  each  other  and  thus  suppressing 
all  existing  competition  in  the  business.  They 
were  further  enjoined: 

(1)  From  underselling  any  competing  serv- 
ice with  the  intent  or  purpose  of  injuring  or  de- 
stroying a  competitor; 

(2)  From  sending  out  traveling  men  for  the 
purpose  or  with  instructions  to  influence  the  cus- 
tomers of  the  competitors,  or  either  of  them,  so 
as  to  secure  the  trade  of  the  customers,  without 
regard  to  the  price; 

(3)  From  selling  their  goods  at  less  than  a 
fair  and  reasonable  price  with  the  purpose  or  in- 
tent of  injuring  or  destroying  the  business  of  a 
competitor ; 

(4)  From    threatening    any    customer    of   a 
competitor  with  starting  a  competing  plant  un- 
less he  patronized  the  defendant; 

(5)  From    threatening    the    competitors    of 
either  one  that  they  must  either  cease  competing 
with  the  defendants  or  sell  out  to  one  of  the  de- 
fendants, under  threat  that  unless  they  did  so 
their  business  would  be  destroyed  by  the  estab- 
lishment of  near-by  plants  to  compete  with  them ; 

(6)  From  in  any  manner,  directly  or  indi- 
rectly, causing  any  person  to  purchase  stock  or 
become  interested  in  the  other  for  the  purpose  or 


44  Trusts  and  Competition 

effect  of  harassing  it  with  unreasonable  demands 
or  inquiries; 

(7)  From   circulating   reports    injurious   to 
the  business  of  the  other; 

(8)  From  persuading  customers  of  compet- 
itors to  violate  contracts  made  with  them  by  un- 
dertaking to  indemnify  them  against  loss  and 
damage  by  reason  of  so  doing.* 

A  long  step  forward  was  made  to  relieve  busi- 
ness of  predatory  practices  by  the  creation  of 
the  Federal  Trade  Commission  (1914).  The 
feature  of  this  act  was  its  declaration,  "  that  un- 
fair methods  of  competition  in  commerce  are 
hereby  declared  unlawful,"  (Sec.  5).  The  Com- 
mission is  empowered  and  directed  to  prevent 
persons,  partnerships,  or  corporations,  except 
banks  and  common  carriers  subject  to  the  act  to 
regulate  commerce,  from  using  unfair  methods 
of  competition  in  interstate  and  foreign  com- 
merce. 

Two  unfair  advantages  helped  to  put  the 
Standard  Oil  Company  in  a  position  to  elim- 
inate competitors.  First,  it  enjoyed  exclusive 
rebates,  drawbacks,  and  discriminating  railway 
rates.  These  not  only  gave  it  control  of  mar- 
kets against  its  rivals,  but  early  in  the  history 
of  the  industry  of  producing,  refining  and  mar- 
keting oil  it  equipped  the  company  with  a  sur- 
plus of  working  and  investment  capital,  which 
it  was  not  slow  to  use  as  a  war  chest  to  drive  its 

*  Eeport  of  the  Attorney  General,  1912,  p.  13. 


Competition  —  Fair  and  Unfair          45 

rivals  out  of  the  market.  Such  a  resource  en- 
abled it  indefinitely  to  undersell  its  less  favor- 
ably situated  competitors. 

Secondly,  its  ownership  of  pipe  lines  which  it 
refused  to  put  at  the  service  of  rivals  as  com- 
mon carriers,  enabled  the  Standard  to  strengthen 
and  perpetuate  its  monopoly.  In  the  report  of 
the  Interstate  Commerce  Commission,  in  the  Pipe 
Lines  Cases,  that  tribunal  declared  that  "more 
than  anything  else,  the  pipe  line  has  contributed 
to  the  monopoly  of  the  Standard  Oil  Company, 
and  the  supremacy  of  that  company  must  conr 
tinue  until  its  rivals  enjoy  the  same  facilities  of 
transportation  by  this  means."  And  the  conten- 
tion of  the  Government  in  the  "  Pipe  Lines 
Cases,"  before  the  Supreme  Court,  finally  com- 
pelling the  pipe  lines  companies  to  serve  as  com- 
mon carriers,  was  absolutely  within  the  facts 
when  it  asserted  that  "the  shipment  of  oil  ex- 
cept by  pipe  line  is  a  practical  impossibility.  No 
other  means  of  transportation  can  possibly  com- 
pete with  it.  Without  a  pipe  line  the  oil  pro- 
duced is,  as  it  were,  shut  out  by  an  impassable 
barrier."  Under  the  California  law,  requiring 
pipe  lines  to  serve  as  common  carriers  on  heavy 
penalty  for  failure,  the  Standard  lines  preferred 
to  pay  what  was  meant  as  a  confiscatory  tax  of 
fifty  cents  a  barrel,  rather  than  yield  the  ad- 
vantage of  exclusive  control  of  its  lines  of  trans- 
portation obtained  under  the  right  of  eminent 
domain.  \ 


CHAPTER  IV 

REGULATION    AND    MONOPOLY 

WE  have  seen  that  neither  predatory  com- 
petition nor  monopoly  for  private  profit 
can  hope  in  the  long  run  to  survive  in  the  field 
of  corporate  enterprise.  Yet  large-scale  pro- 
duction has  come  to  be  welcomed  under  the  cor- 
porate form  in  trade  and  industry  in  all  leading 
•countries  of  the  globe.  And  monopolies  rightly 
regulated  serve  certain  public  uses  acceptably. 
Out  of  an  era  of  wasteful  competition  we  have 
come  into  one  of  restrictive  combinations.  We 
are  entering  upon  a  third  stage  of  business,  a 
re-division  of  the  domain  of  corporate  service. 
On  the  one  hand  competition  tends  to  become  the 
ruling  principle  within  legal  limits  in  corpora- 
tions operating  for  private  profit.  On  the  other, 
monopoly  under  public  regulation  becomes  the 
dominant  policy  in  public  service  activities. 

1.  Regulation  of  Competition 

Do  these  two  fields  require  different  policies? 
Louis  D.  Brandeis  is  credited  with  the  formula 
that  the  only  sound  policy  in  relation  to  trusts 
is  the  regulation  of  competition  rather  than  the 
regulation  of  monopoly.  But  this  is  too  nar- 
row a  view  of  trust  policy  taken  in  its  larger 
46 


Regulation  and  Monopoly  47 

aspects.  It  suffices  to  express  the  right  aim  as 
it  applies  to  corporations  organized  for  private 
profit.  But  it  does  not  cover  that  large  class  of 
cases  included  in  the  quasi-public  corporations 
known  as  franchise  trusts.  The  fact  is  that  the 
treatment  of  monopoly  and  competition  as  opera- 
tive policies  in  business  has  long  since  ceased  to 
call  for  a  simple  or  a  single  solution. 

In  the  field  of  private  profit  the  industrial  and 
commercial  corporation  affords  a  large  number 
of  instances  of  combinations  still  exercising  some 
degree  of  monopoly  control  over  natural  re- 
sources, methods  of  distribution,  or  the  fixing  of 
prices.  The  main  reason  for  the  more  offensive 
kind  of  monopoly,  however,  is  not  to  be  found 
in  the  destructive  competition  which  in  the  past 
has  had  no  limitation  set  to  it  short  of  the  sur- 
vival of  the  strongest.  Destructive  competition 
is  a  tendency  which,  unregulated  by  public  con- 
trol, corrects  itself  in  its  own  costly  way.  When 
private  control  of  policies  and  prices  becomes 
institutionalized  the  corporation  may  become 
one  of  the  principal  instruments  of  monopoly. 
"  The  corporation  will  be  a  danger  to  industrial 
and  financial  freedom,"  declares  Robert  R.  Reed, 
of  New  York,  in  his  argument  for  restricting  the 
state  charters  of  interstate  companies,  "  so  long 
as  single  or  secret  interests  can  control  nominally 
competing  concerns.  The  essential  reform  is  to 
destroy  the  power  of  control  of  competing  com- 
panies." From  this  viewpoint  it  is  clear  that  be- 


48  Trusts  and  Competition 

fore  fair  competition  can  prevail  it  will  be  neces- 
sary to  take  from  corporate  charters  that  which 
keeps  the  corporations  themselves  from  func- 
tioning as  competitive  units.  There  is  no  way 
of  making  corporations  compete  on  fair  and 
equal  terms  except  by  de-monopolizing  them  as 
legalized  institutions. 

This  policy  insists  that,  as  the  basis  for  indus- 
trial and  commercial  liberty,  the  conditions  of 
fair  competition  must  be  re-established  in  all 
corporations  which  lie  outside  of  the  domain  of 
public  utility.  There  must  be  no  legalized 
monopoly  without  public  regulation.  Private 
monopoly  —  monopoly  for  private  profit  as  the 
essential  and  preeminent  aim  —  is  repugnant  to 
the  public  sense  of  right,  because  it  gives  to  in- 
dividuals acting  in  their  private  capacity  a  priv- 
ileged opportunity  apart  from  government  to 
exploit  the  community.  Wherever  by  combina- 
tion or  other  means  private  corporations  succeed 
in  securing  a  position  for  themselves  which 
amounts  virtually  to  a  privilege  of  this  type, 
there  the  status  of  the  private  combination  be- 
comes intolerable  because  it  has  usurped  a  power 
which  the  state  should  grant  only  to  corporations 
consecrated  to  the  public  service. 

2.  The  Law  and  Limits  of  Monopoly 

Competition  and  monopoly  stand  as  opposites 
in  economic  terminology.  They  represent  mu- 
tually exclusive  practices  and  principles.  They 


Regulation  and  Monopoly  49 

are  as  opposite  as  freedom  and  bondage,  as  lib- 
erty and  servitude.  As  principles  in  business 
they  refer  to  conditions  under  which  the  produc- 
tion, exchange  and  distribution  of  wealth  take 
place.  But  they  are  both  alike  related  to  the 
one  economic  fact  of  prices.  Competition  and 
monopoly  each  refer  to  opposing  forces  that  are 
active  in  productive  processes  in  determining 
prices.  Hence,  as  Prof.  Frederick  C.  Hicks 
claims,  there  are  but  two  price-making  groups 
of  business  enterprise  —  the  competitive  and  the 
monopolistic.* 

In  competitive  business  prices  tend  to  equal  the 
sum  of  the  expenses  of  production  out  of  free 
goods. 

To  the  extent  that  monopoly  costs,  that  is, 
monopoly  goods,  enter  into  expenses  of  pro- 
duction, to  that  extent  the  resultant  price  con- 
tains a  monopoly  element.  This  element  may 
consist  in  exclusive  control  of  natural  agents 
(land),  in  personal  capabilities  (skill),  or  in 
market  opportunities,  as  in  a  municipal  fran- 
chise. 

Monopoly  is  a  question  of  degree  of  price 
control.  Exclusive  control  completes  the  mo- 
nopoly. Hence  Ely's  definition:  "Monopoly 
means  that  substantial  unity  of  action  on  the 
part  of  one  or  more  persons  engaged  in  some 
kind  of  business  which  gives  exclusive  control, 

*  Competitive  and  Monopoly  Price,  F.  C.  Hicks.  Uni- 
versity of  Cincinnati  Press. 


50  Trusts  and  Competition 

more  particularly,  although  not  solely,  with  re- 
spect to  price."  * 

It  is  plain,  therefore,  that  even  in  competitive 
business  there  is  more  or  less  of  what  is  monopo- 
listic in  its  effect  on  the  price  resultant.  It  is 
only  when  this  monopoly  factor  becomes  of 
dominant  proportions  that  society,  through  its 
governmental  authority,  proceeds  to  ascertain 
whether  or  not  the  productive  process  needs  to 
be  re-organized  so  as  to  restore  competitive  or 
approve  monopolistic  prices. 

Monopolies  exercise  their  power  over  the  mar- 
ket not  simply  by  raising,  lowering,  or  stabilizing 
prices.  They  do  ft?  by  control  over  and  distri- 
bution of  supply.  They  may  furnish  a  sup- 
ply regularly  or  irregularly.  They  may  charge 
different  prices  in  the  same  market  for  but 
slightly  different  goods.  Increased  expenses  of 
production,  higher  tariffs  or  heavier  taxes  on 
monopoly  products  result  in  shifting  forward 
the  price  increase  as  a  rule  upon  the  consumer, 
unless  such  increase  exceeds  the  limits  of  mo- 
nopoly. 

Limits  to  monopoly  are  set  by  three  very 
strong  influences.  First,  by  the  elasticity  of  de- 
mand. As  prices  rise,  or  the  purchasing  power 
of  money  diminishes,  demand  may  be  curtailed 
by  the  consumer,  the  number  of  unit-sales  be  re- 
duced and  net  profits  fall.  Secondly,  by  the 

*  Monopolies  and  Trusts,  Eichard  T.  Ely.  The  Mae- 
millan  Company,  New  York,  Chap.  I. 


Regulation  and  Monopoly  51 

power  to  substitute  for  a  monopoly  article  one 
similar  enough  to  serve  the  consumer's  purposes. 
Thirdly,  by  potential  competition.  "I  sell 
my  company's  output  at  the  highest  price  that 
will  keep  competitors  from  putting  capital  into 
the  business,"  is  the  way  a  trust  president 
stated  it. 

Where  potential  competition  hedges  about  an 
industrial  combination's  policy  the  emphasis  in 
management  will  normally  be  placed  on  increased 
efficiency  of  making  and  selling  the  output.  This 
is  one  of  the  main  lessons  of  trust  experience  in 
the  United  States.  President  Arthur  T.  Hadley 
states  the  principle  admirably  as  showing  this 
limitation  of  price-making  power  in  industrial 
monopolies.  "  If  [he  reasons]  monopoly  is  man- 
aged by  unexperienced  hands  the  effort  to  put 
prices  up  is  usually  more  noticeable  than  the  ef- 
fort to  put  expenses  down.  It  seems  so  easy  to 
make  a  profit  at  the  expense  of  society,  that  man- 
agers are  apt  to  neglect  the  more  laborious 
method  of  making  a  profit  by  service  to  so- 
ciety. When  business  men  have  been  all  their 
lives  accustomed  to  face  immediate  competition 
they  think  that  the  combination  of  all  compet- 
itors removes  the  only  effective  restriction  upon 
charges.  But  this  is  a  short-sighted  view  of  the 
matter,  which  has  wrecked  most  of  the  enterprises 
run  on  such  a  basis."  * 

*  Economics,  Arthur  T.  Hadley.  G.  P.  Putnam's  Sons, 
New  York. 


52  Trusts  and  Competition 


3.  Elements  and  Sources  of  Monopoly 

In  practically  all  of  the  more  important  trusts 
there  was  some  element  of  monopoly,  privilege, 
or  natural  advantage  which  gave  the  concern  a 
position  not  easily  duplicated  by  a  rival.  The 
Secretary  of  the  National  Asphalt  Company, 
testifying  of  its  chief  subsidiary,  which  had  ab- 
sorbed constituent  companies  at  a  security  cost 
of  $30,000,000,  said:  "The  Asphalt  Company 
of  America's  property  is  of  such  a  character 
that  its  value  is  largely  speculative  and  can  not 
be  positively  fixed.  This  is  because  of  the  im- 
portant position  which  the  deposits  of  asphalt, 
owned  or  controlled,  hold  among  the  assets  of 
the  company."  *  Of  the  steel  trust's  advantages 
in  consolidation  Charles  M.  Schwab  testified, 
"  The  great  advantage  started  with  the  ore,"  of 
which  this  corporation  held  eighty  per  cent  of 
the  known  ranges  in  the  Northwest  by  outright 
ownership,  containing  500,000,000  tons  in  sight. 
Equally  advantageous  was  its  large  ownership  of 
Connellsville  coking  coal. 

The  presence  or  absence  of  monopoly  in  any 
industry  is  often  sought  in  its  ability  to  dictate 
prices  by  its  large  percentage  of  products  made. 
Yet  here  much  depends  on  market  conditions,  on 
the  kind  of  product,  on  the  character  of  control 
and  on  the  policy  of  management.  Ability  to  fix 

*  United  States  Industrial  Commission,  Vol.  XIII,  p. 
677. 


Regulation  and  Monopoly  53 

prices  was  disclaimed  (1901 )  by  the  steel  authori- 
ties with  an  output  ranging  from  sixty-five  to 
seventy-five  per  cent  of  the  whole  industry. 
"  These  prices  are  naturally  fixed  [it  was  claimed 
by  President  Schwab],  whether  there  is  a  com- 
bination or  not,  in  times  of  great  demand.  In 
times  of  depression  the  chances  are  that  when  we 
take  anything  like  seventy  per  cent  of  the  busi- 
ness, the  company  would  be  unable  to  fix  the 
prices."  The  Pittsburgh  Plate  Glass  Company, 
on  the  other  hand,  controlling  eighty  per  cent 
of  the  output,  exercised  so  much  of  a  monopoly 
as  to  dominate  among  jobbers  the  importing  of 
plate  glass.  This  company  was  charged  with 
maintaining  prices  in  this  country  at  fifty  per 
cent  above  the  prices  abroad,  and  of  advancing 
prices  from  one  hundred  twenty-five  per  cent 
to  one  hundred  fifty  per  cent  by  combination  of 
factories  and  reduction  of  supply. 

The  American  tariff  of  import  duties  has 
been  regarded  as  giving  to  otherwise  competitive 
industries  some  degree  of  monopoly  advantage 
among  combinations.  That  was  certainly  not  the 
case  with  the  oil  and  tobacco  trusts,  nor  with 
the  meat  trusts.  Yet  Byron  W.  Holt  of  the 
Tariff  Reform  Club,  and  H.  O.  Havemeyer,  the 
sugar  magnate,  both  saw  in  protective  duties  a 
chief  cause  of  trusts.  The  latter,  who  wanted 
free  raw  sugar,  declared:  "The  mother  of  all 
trusts  is  the  custom-tariff  bill."  The  former,  who 
wanted  free  trade,  identified  the  tariff  as  the  most 


54  Trusts  and  Competition 

important  among  the  special  privileges  which 
breed  trusts,  but  did  not  claim  that  the  abolition 
of  tariff  duties  would  kill  all  or  even  most  of 
them.  "Tariff  duties,  such  as  this  country  lev- 
ies [he  argued]  practically  alienate  us  from  the 
rest  of  the  world,  so  far  as  concerns  many  indus- 
tries, and  make  it  easier  for  our  producers  in  any 
one  line  to  combine,  formally  or  informally,  and 
to  put  prices  up  to  the  import  level  of,  the  duty- 
paid  prices  of  foreign  goods."  * 

Patents  confer  upon  their  owners  an  exclu- 
sive privilege.  As  such  they  have  figured  largely 
in  the  program  of  combinations.  Under  the 
anti-trust  laws  it  became  necessary  to  define  to 
what  extent  a  patent  entitled  its  proprietor  to 
restrictive  control.  In  the  Dick  mimeograph 
case  the  Supreme  Court  took  the  view  that  the 
patentee  might  either  suppress  entirely  his  in- 
vention, or  if  he  put  it  on  the  market  he  was 
within  his  rights  in  requiring  users  to  purchase 
certain  supplies  (ink,  etc.),  as  the  condition  of 
the  right  to  use  the  invention  at  all.  To  use 
other  supplies  was  adjudged  to  be  an  infringe- 
ment. In  that  instance  the  patented  article,  the 
rotary  mimeograph,  was  sold  at  cost  and  the 
profits  made  on  the  supplies  sold  with  it. 

Efforts  to  secure  a  monopoly  by  the  combina- 
tion of  patents  have  been  attempted  in  various 
instances,  but  not  with  much  success.  Where 
several  manufacturers  of  harrows  under  United 

*  United  States  Industrial  Commission,  Vol.  XIII,  553. 


Regulation  and  Monopoly  55 

States  patents  agreed  to  organize,  by  assigning 
their  patents  to  a  corporation  controlling  sev- 
enty per  cent  of  the  total  output  of  the  United 
States,  each  subsidiary  agreed  to  work  under 
license  and  not  to  cut  prices.  In  this  case  the 
combination  was  declared  an  unlawful  restraint 
of  trade.  "Patents  confer  a  monopoly  [said 
the  court  in  the  National  Harrow  Case]  as  re- 
spects the  property  covered  by  them,  but  they 
confer  no  right  upon  the  owners  of  several 
distinct  patents  to  combine  for  the  purpose  of 
restraining  competition  and  trade.  .  .  .  Such 
combinations  are  conspiracies  against  the  public 
interests,  and  abuses  of  patent  privileges."  The 
same  conclusion  was  reached  in  the  bath-tub  case, 
denying  combinations  the  right  to  effect  a  mo- 
nopoly under  the  cloak  of  a  patent  privilege.  On 
this  same  principle  the  booksellers'  association, 
which  formed  a  combination  and  agreement  to 
maintain  the  prices  of  copyrighted  books  at 
retail,  was  held  to  be  unlawful.  "  No  more  than 
the  patent  statute  was  the  copyright  act  intended 
to  authorize  agreements  in  unlawful  restraint  of 
trade  and  tending  to  monopoly." 

In  all  of  these  cases  the  result  of  combination 
was  to  lessen  competition  and  promote  monop- 
oly, by  merging  similar  and  rival  industries. 
But  in  the  combination  of  different  industries, 
as  seen  in  the  new  company  formed  by  the  three 
patent  shoe  machinery  companies,  the  merging 
was  not  regarded  as  lessening  competition  or  as 


56  Trusts  and  Competition 

giving  any  more  of  a  monopoly  than  resided 
in  the  patents  of  each  company  taken  sepa- 
rately. "  The  combination,"  said  Mr.  Justice 
Holmes,  "was  simply  an  effort  after  greater 
efficiency." 

4.  Regulation  of  Public  Utilities 

Among  the  corporate  problems  of  the  day  a 
more  recent  class  to  require  attention  is  that  of 
the  public  utilities.  These  include,  besides  inter- 
urban  electric  and  hydro-electric  plants,  mu- 
nicipal companies  organized  for  the  purpose  of 
rendering  a  public  service  and  usually  classed  as 
municipal  or  franchise  corporations.  Formerly 
the  functions  of  lighting,  water  supply,  and  the 
like  were  each  performed  in  the  local  territory 
by  one  or  more  corporations  enfranchised  for 
the  purpose.  But  it  soon  came  to  be  seen  that 
the  public  interest  could  not  best  be  served  by 
regarding  this  field  as  one  suited  for  competi- 
tion. 

The  inconvenience  of  rival  corporations  oper- 
ating in  the  same  streets,  the  waste  of  energies 
in  pitting  one  corporation  against  another,  the 
duplication  of  investment  and  the  inevitable  out- 
come of  consolidation  after  a  period  of  com- 
petitive waste  and  deficient  service  —  these  things 
led  to  the  conclusion  that  regulated  monopoly 
was  better  than  unregulated  competition.  Hence, 
out  of  the  competitive  policy  arose  that  of  con- 
trol and  bargaining.  First  the  municipal  au- 


Regulation  and  Monopoly  57 

thorities  acting  for  the  state  and  then  the  state 
through  public  service  commissions  became  the 
supervising  power  in  determining,  within  con- 
stitutional and  legal  limits,  the  terms  on  which 
utilities  should  be  operated  under  public  fran- 
chise. 

In  an  address  delivered  in  1914  Francis  T. 
Homer  said :  "  After  years  and  years  of  experi- 
menting with  a  view  to  having  competitive 
service  in  the  public  utility  field  it  has  at  last 
become  universally  recognized  that  a  public 
utility  is  a  natural  monopoly,  and  that  genuine 
competition  between  separate  utility  corpora- 
tions furnishing  a  similar  service  is  substantially 
impossible.  Nay,  it  has  been  found  that  not 
only  is  it  impossible,  but  by  the  very  nature 
of  the  service  rendered  it  is  most  undesirable.  To 
illustrate  that  briefly  —  why  have  two  gas  plants 
with  double  the  investment,  each  duplicating 
distribution  pipe  lines  throughout  a  city  fur- 
nishing gas,  one  to  this  consumer,  one  to  that, 
when  with  a  single  plant  and  a  single  distribu- 
tion system  manufacturing  costs  would  be  less 
and  interest  charges  on  investment  would  be  one- 
half?"* 

In  certain  services  the  tendency  toward  monop- 
oly has  gone  still  farther.  Many  municipali- 
ties sooner  or  later  have  come  to  take  over  the 
service  of  water  supply.  Two  reasons  are  usually 

*  The  Public,  the  Investor,  and  the  Holding  Company, 
F.  T.  Homer.  West  Side  Y.  M.  C.  A.,  New  York. 


58  Trusts  and  Competition 

assigned  for  this:  first,  the  simplicity  of  the 
service,  involving  much  less  technical  talent  and 
risk  in  administration  than  in  the  service  of  light- 
ing and  certainly  less  than  in  that  of  the  street 
railway  service.  A  second  reason  is  that  water 
relates  so  directly  to  the  health  of  the  com- 
munity, and  the  cost  of  service  is  so  negligible 
as  compared  with  its  importance  that  absolute 
control  is  desirable. 

An  idea  of  the  growth  of  the  service  of  fur- 
nishing light  and  power,  largely  in  the  public 
utility  field,  may  be  gathered  from  the  fact  that 
in  1877  the  electrical  industries  of  the  country 
represented  an  investment  of  about  $30,000,000, 
whereas  the  corresponding  estimate  in  all  the 
electrical  fields  at  the  end  of  1913  was  put  con- 
servatively at  $20,000,000,000.  In  this  partic- 
ular utility,  wherein  electricity  is  the  motive 
power,  or  medium  of  service,  the  considerations 
against  public  ownership  are  numerous.  Both 
political  and  technical  conditions  veto  the  idea 
of  the  municipality  preempting  a  service  to 
itself  in  which  the  costs  of  development  are  so 
high.  It  is  regarded  as  much  better  that  pio- 
neering profits  should  serve  as  a  premium  to 
induce  private  capital  to  enter  this  field  of  cor- 
porate monopoly  under  public  supervision  than 
that  the  state  or  city  should  impose  upon  its  tax- 
payers the  burden  of  providing  and  improving 
the  facilities  in  a  field  which  is  still  in  a  rapidly 
advancing  state  of  progress. 


Regulation  and  Monopoly  59 


5.  Public  Relations  of  Service  Companies 

The  committee  on  public  relations  at  the 
convention  of  the  American  Electric  Railway 
Association,  October,  1914,  through  Thomas  N. 
McCarter,  president  of  The  Public  Service 
Corporation  of  New  Jersey,  outlined  the  definite 
code  of  principles  to  govern  relations  between 
the  electric  railways  and  the  public,  which  fol- 
low: 

"  1 .  The  first  obligation  of  public  utilities  en- 
gaged in  transportation  is  service  to  the  public, 
and  the  first  essential  of  service  is  safety. 

"  Quality  of  service  must  primarily  depend 
upon  the  money  received  in  fares,  which  should 
be  sufficient  to  permit  the  companies  to  meet  the 
reasonable  demands  of  patrons  t  and  to  yield  a 
fair  return  on  a  fair  capitalization. 

"2.  Regulated  private  ownership  and  opera- 
tion of  electric  railways  is  more  conducive  to 
good  service  and  the  public  welfare  than  govern- 
ment ownership  and  operation.  The  interests  of 
the  public  are  fully  protected  by  the  authority 
given  to  regulatory  bodies. 

"3.  In  the  interest  of  the  public  and  good 
service  local  transportation  should  be  a  monop- 
oly and  should  be  subject  to  regulation  and 
protection  by  the  state  rather  than  by  local  au- 
thorities. 

"4.  Short-term  franchises  are  detrimental  to 
civic  welfare  and  growth  because  they  ultimately 


60  Trusts  and  Competition 

check  the  extension  of  facilities  and  discourage 
good  service. 

"  5.  Securities  which  have  been  issued  in  ac- 
cordance with  the  law  as  it  has  been  interpreted 
in  the  past  should  be  valid  obligations  on  which 
an  electric  railway  is  entitled  to  a  fair  return. 

"  6.  The  relation  of  adequate  wages  to  effi- 
cient operation  should  always  be  recognized,  but 
electric  railways,  being  public  servants  regulated 
by  public  authorities,  should  be  protected  against 
excessive  demands  of  labor  and  strikes. 

"  7.  The  principles  of  ownership  of  securities 
of  local  companies  by  centralized  holding  com- 
panies is  economically  sound  for  the  reason  that 
the  securities  of  the  latter  have  protection 
against  the  varying  business  conditions  of  a 
single  locality  or  company  and  because  money 
for  construction  and  improvements  can  thus  be 
more  readily  obtained. 

"  8.  In  the  appraisal  of  an  electric  railway 
for  the  purpose  of  determining  reasonable  rates, 
all  methods  of  valuation  should  have  due  con- 
sideration. 

"9.  Full  and  frank  publicity  should  be  the 
policy  of  all  transportation  companies,  to  the 
end  that  proper  information  may  be  available  to 
the  investor  and  the  public." 

6.  The  Right  and  Wrong  in  Holding  Companies 

Holding  companies  are  corporations  author- 
ized to  hold  the  securities  of  other  corporations. 


I 


Regulation  and  Monopoly  61 

They  are  corporate  stockholders  which  eliminate 
the  individual.  No  feature  of  the  trust  system 
has  been  more  severely  criticized  or  more  widely 
resorted  to.  In  the  order  of  development  it 
came  after  pooling  and  the  trust  proper  had 
failed  to  serve  the  purposes  of  combination  to  re- 
strict competition  and  secure  unity  of  control. 
It  was  the  form  of  corporate  organization  in 
which  such  aggregations  as  the  sugar,  the  oil, 
and  the  tobacco  trusts  took  refuge  when  their 
original  trust  decrees  became  legally  untenable. 
It  has  rendered  service  in  each  of  the  great  fields 
of  trust  organization  of  industrial,  railway,  and 
public  utility  consolidations. 

Curiously  enough,  the  holding  company  is 
almost  contemporaneous  with  the  Sherman  Anti- 
Trust  Act.  In  1889  the  New  Jersey  legislature 
took  the  unusual  step  of  authorizing  what  legis- 
latures and  courts  had  up  to  that  time  refused  to 
do,  except  incidentally  or  by  express  designation. 
Since  that  year  most  of  the  other  states  in  self- 
defense  have  amended  their  corporation  laws  to 
admit  a  corporation  to  serve  in  the  capacity  of  a 
stockholder.  The  result  has  been  that  trust  after 
trust  sought  shelter  under  this  device  to  renew 
its  loosening  grip  on  corporate  monopoly.  Prob- 
ably the  worst  feature  of  the  holding  company 
is  its  elimination  of  the  body  of  stockholders 
from  responsibility  for  the  management  and 
policy  of  the  trust  corporation.  It  has  been 
pointed  out  that  the  large  corporations  are  man- 


Trusts  and  Competition 


aged  mainly  by  their  executive  committees.  Un- 
der that  system  of  government  the  management 
of  the  controlled  company  is  conducted  primarily 
for  the  benefit  of  the  controlling  or  holding  com- 
pany, which  may  be  and  often  is  opposed  to  the 
welfare  of  the  controlled  companies. 

This  has  tended  also  to  impair  public  faith  in 
these  issues.  "If  it  were  asked  [Samuel  Unter- 
meyer  declared]  what  single  thing  is  mainly 
responsible  for  the  loss  of  public  confidence  in 
security  values,  I  should  say,  without  hesitation, 
the  holding  company.  This  financial  device  is 
not  only  a  great  evil  in  itself,  but  harbinger  of 
other  evils.  It  is  a  recent  abomination,  a  pro- 
lific means  of  oppression,  and  the  most  faithful 
source  through  which  minority  stockholders  are 
defrauded  of  their  rights.  But  for  this  device, 
the  majority  of  the  trusts  that  are  afflicting  this 
country  could  never  have  been  born.  The  hold- 
ing company  is  the  result  of  vicious  competi- 
tion between  the  states,  which  have  bid  against 
one  another  for  the  patronage  of  the  corpora- 
tions by  offering  the  inducements  of  the  lax  re- 
quirements and  improper  privileges."  * 

By  playing  one  state's  authority  against  an- 
other, trusts  condemned  in  one  have  sought 
refuge  and  authorization  in  another  to  do  the 
condemned  things.  It  will  be  recalled  that  when 
the  Sugar  Trust  of  New  York  and  the  Standard 
Oil  were  declared  illegal  by  the  courts  back  in  the 

*Munsey's  Magazine,  August,  1912. 


Regulation  and  Monopoly 


early  eighties,  they  went  to  the  legislature  of 
New  Jersey  and  obtained  a  statutory  grant  of 
the  power  of  monopoly,  the  creation  of  holding 
companies,  to  take  the  place  of  the  trusts  which 
the  courts  had  dissolved.  Here  we  get  at  the 
source  of  the  difficulty,  in  the  evasive  recoupment 
of  monopoly  power. 

A  third  field  of  holding  company  expansion  is 
found  in  the  control  of  public  utilities.  How 
extensively  the  holding  company  figures  in  this 
movement  is  seen  by  the  following  table  of  val- 
ues of  the  three  main  classes  of  utility  invest- 
ments in  the  United  States : 

Per  cent 

CLASSES  OP  Securities         By  holding      hold. 

UTILITIES  issued  companies         cos. 

Electric   lighting..  .$2,111,961,000  $1,741,958,000     82.5 

Gas  business 1,320,000,000        874,000,000     66.0 

Traction  companies  4,043,663,000     3,281,000,000     81.4 

Totals   $7,475,624,000  $5,896,958,000     78.9 

This  form  of  corporate  management  in  which 
nearly  seventy-nine  per  cent  of  the  investment 
of  $7,475,624,000  is  found,  stands  by  itself  in 
occupying  a  field  of  monopoly  service  under  pub- 
lic regulation.  Its  uniqueness  is  the  result  of 
decades  of  experiment  with  competition.  In  the 
address  already  referred  to  Francis  T.  Homer 
stated  this  principle  clearly,  as  follows: 

"When,  however,  you  pass  from  the  holding 
company  and  the  purposes  which  it  accomplishes 
in  the  railroad,  industrial,  manufacturing  and 


64*  Trusts  and  Competition 

commercial  field,  to  the  holding  company  of  a 
public  utility  corporation,  you  find  a  very  definite 
and  marked  distinction.  This  distinction  is  not 
born  of  a  difference  in  corporate  powers  or  pur- 
poses. It  is  born  of  the  inherent  difference  be- 
tween the  subsidiaries  owned,  that  is,  between  a 
public  utility  corporation  on  the  one  hand,  and 
a  railroad  or  commercial  corporation  on  the 
other  hand."  * 

The  holding  company  differs  from  the  trust 
proper  as  ownership  differs  from  trusteeship.  In 
the  trust  form  of  control  the  agreement  makes 
the  trustees  custodians  of  the  stockholders'  prop- 
erty, whereas  the  holding  company  purchases 
outright  the  controlled  corporations  or  ex- 
changes its  own  securities  for  those  of  the  con- 
trolled companies.  Hence  the  substitution  of 
ownership  in  subsidiaries  for  trusteeship  of  the 
original  trust  member-corporations  is  the  essen- 
tial feature  in  passing  from  the  trust  form  to 
the  holding-company  form  of  consolidation. 

Holding  companies  among  public  utilities  can- 
not be  said  to  control  competing  companies. 
There  can  be  no  competition  between  two  electric 
lighting  plants  in  Indianapolis  and  Denver 
owned  by  the  same  holding  corporation ;  but 
there  may  be  much  gain  by  common  and  com- 
parative management. 

Yet  these  utility  holding  concerns  are  not  with- 
out their  meed  of  criticism.  It  has  been  justly 

*  The  Public,  the  Investor,  and  the  Holding  Company. 


Regulation  and  Monopoly  65 

claimed,  in  instances  at  least,  that  they  are  a 
means  of  excessive  over-capitalization;  that  the 
public  is  likely  to  be  misled  by  the  character  of 
the  holding  company's  securities,  because  of  the 
facility  with  which  their  intangible  values  are 
carried  into  security  or  book  worth ;  that  by  ac- 
quiring a  majority  of  the  stock  of  subsidiaries 
they  place  the  minority  stockholders  at  a  disad- 
vantage; that  manufacturers  of  equipment  and 
supplies  by  means  of  such  companies  tend  to  con- 
trol much  of  the  field  in  their  own  behalf  through 
stock  payments  for  equipment  supplies;  that 
management  of  local  companies  through  a  dis- 
tant holding  company  prevents  the  responsible 
officials  from  being  promptly  responsive  to  the 
needs  of  the  local  situation. 

Holding  companies  are  most  vulnerable  in  the 
industrial  and  commercial  branches  of  business. 
The  trend  of  legislation  and  economic  criticism 
is  against  them  and  they  are  destined  to  go,  so 
far  as  they  evade  legal  responsibility  and  defeat 
the  course  of  fair  competition.  Wherever  they 
promote  monopoly  in  private  enterprise  they 
are  a  source  of  dis-service  and  retard  progress. 
Where  they  limit  their  services  to  developing 
cooperation,  as  in  the  municipal  realm  they  may 
readily  justify  their  right  to  exist. 

*  Public  Policies  as  to  Municipal  Utilities,  Annals  of 
Am.  Academy,  &c.,  Philada.,  January,  1915. 


CHAPTER  V 

TRADE     RESTRAINTS     IN     COMMERCIAL     PRACTICE 

'Tp RUSTS  derive  most  of  their  powers  to  ex- 
-»-  ploit  the  market  from  two  sources  —  from 
their  charters  or  from  outside  contracts.  Their 
charters  embody  their  most  basic  legal  asset,  and 
the  law  regards  the  corporation  as  entitled  to  do 
what  its  charter  enumerates  as  among  its  powers. 
Outside  of  these  it  is  debatable  ground.  But  the 
general  right  to  enter  into  agreements  with  other 
corporations  in  such  a  way  as  to  enhance  original 
powers  much  beyond  those  enumerated  in  char- 
ters has  enabled  the  trusts  to  develop  a  dominion 
unique  alike  in  the  realm  of  law  and  economics. 

1.  Cooperative  Trade  Agreements 

These  intercorporate  agreements  in  one  sense 
constitute  the  nervous  system  of  the  trust  prob- 
lem. At  them  the  best  efforts  of  governmental 
attack  have  been  aimed.  So  vital  do  these  com- 
pacts seem  to  be  to  business  confidence,  so  essen- 
tial have  they  apparently  been  in  the  structure 
of  corporate  life  and  so  long  have  they  been  a 
part  of  the  commercial  system  of  this  and  other 
nations,  that  to  some  it  would  seem  like  economic 
suicide  to  attempt  to  eliminate  rather  than  to 
regulate  them. 

66 


Restraints  in  Commercial  Practice        67 

How  extensive  these  agreements  have  been  in 
the  course  of  our  industrial  evolution  is  not 
always  appreciated  by  those  who  would  reform 
our  corporate  system.  Charles  G.  Dawes,  in  ad- 
vocating a  governmental  tribunal  to  pass  on 
these  agreements,  declared :  "  The  United  States 
Consular  reports  state  that  in  1905  there  were 
385  cartels  or  agreements  in  restraint  of  trade 
in  existence  in  Germany,  where  they  are  encour- 
aged in  behalf  of  the  general  public  and  have  no 
political  opposition.  I  believe  it  no  exaggera- 
tion to  state  that  in  the  United  States  we  have 
five  cartels  to  every  one  in  Germany.  When  the 
agreements  among  local  retailers,  district  whole- 
salers, local  and  district  manufacturers,  publish- 
ers, labor  unions,  contractors,  employers,  and 
employes  are  considered,  existing  as  they  do, 
throughout  almost  the  entire  country,  some 
reasonable  in  their  nature  and  some  unreason- 
able, an  idea  may  be  gained  of  how  far  the  busi- 
ness interests  of  this  country  have  already 
adopted  the  new  order  of  cooperation  as  against 
the  old  one  of  unrestricted  competition."  * 

In  different  countries  these  agreements  are 
known  by  different  names.  The  cartel  in  Ger- 
many corresponds  with  the  amalgamation  in  Eng- 
land, the  syndicate  in  France,  and  with  pools, 
associations,  and  trusts  in  America  in  a  general 
way.  But  in  America  the  pooling  association 
has  had  its  most  varied  and  longest  history. 

*  New  YorTc  Times,  November  7,  1911. 


68  Trusts  and  Competition 

Prof.  Wm.  S.  Stevens's  instructive  analysis  of 
this  type  of  industrial  combination*  indicates 
the  scope  of  their  efforts.  He  finds  that  they 
assumed  the  following  seven  different  forms 
according  to  their  purpose:  (1)  To  divide  out- 
put or  traffic;  (2)  To  curtail  productions; 
(3)  To  apportion  territory;  (4)  To  provide 
for  sales  through  a  common  agent;  (5)  To  fix 
and  control  prices;  (6)  To  serve  as  clearing- 
house for  dividing  profits;  (7)  To  preserve 
"  legitimate "  trading  among  manufacturers, 
wholesalers,  and  retailers.  Of  the  last-named 
type  are  the  lumber,  the  grocery,  and  the  plumb- 
ing organizations  representing  different  portions 
of  the  country.  Their  scope  is  as  wide  as  the 
nation,  so  that  they  are  practically  all  interstate 
agreements.  Federal  court  decrees  have  dis- 
solved several  of  these,  but  it  is  believed  that 
there  are  still  many  in  actual  operation. 

2.  Pooling  -for  Fixing  Prices 

Among  the  earlier  methods  of  cooperation  to 
mitigate  the  severity  of  competition,  without  sur- 
render of  financial  and  legal  independence  by  the 
parties  to  these  understandings,  were  the  pool- 
ing organizations.  These  played  their  larger 
role  in  the  period  of  about  thirty  years  prior  to 
the  era  of  trust  formation,  from  1893  to  1898. 
There  were  many  different  varieties  in  existence 

*  The  American  Economic  Eeview,  September,  1913. 


Restraints  in  Commercial  Practice        69 

during  these  three  decades.  They  may  all  be 
divided  into  three  main  types  among  agreements 
whose  object  was  self-regulation  of  competitive 
forces. 

The  first  type  is  not  inaptly  designated  as 
the  conference  type  of  pool,  or  "  gentlemen's 
agreement,"  without  forfeit  for  failure  to  con- 
form to  their  word.  These  were  based  on  social 
or  moral  rather  than  on  any  legal  obligation.  A 
second  variety  was  the  clearing-house  type, 
which  imposed  forfeits  and  had  a  central  office  in 
charge  of  a  supervisor  to  whom  reports  were 
regularly  submitted  and  who  reported  to  mem- 
bers. Such  was  the  American  Wall  Paper  Com- 
pany of  1880-88.  A  third  was  the  disciplinary 
type  whose  capacity  to  penalize  irregularity 
maintained  rates  or  prices.  The  Southern  Rail- 
way and  Steamship  Association  was  a  striking 
example  of  this  species. 

Of  the  clearing-house  type  of  pools  was  that  in 
the  cordage  industry.  These  were  in  force  more 
or  less  continuously  from  1860  to  1890.  James 
M.  Waterbury,  then  President  of  the  National 
Cordage  Company,  described  before  the  Indus- 
trial Commission,  1901,  their  pooling  operations 
as  follows :  "  All  manufacturers  would  meet  and 
agree  to  divide  the  business  of  the  country  upon 
certain  percentages,  and  when  they  had  agreed 
on  the  percentages  the  rule  was  that  each  manu- 
facturer should  make  his  returns  monthly  to  a 
supervisor,  and  if  his  business  ran  beyond  his 


70  Trusts  and  Competition 

percentage  he  paid  in  to  the  supervisor  so  much 
per  pound  on  the  excess  beyond  his  percentage ; 
and  then  those  that  went  below  that  percentage 
drew  out  from  the  supervisor  an  amount  as  much 
per  pound  as  they  went  below  their  percentage. 
The  supervisor  acted  as  a  clearing-house  for  the 
manufacturers. 

"  Q.     Did  any  of  them  last  long? 

"A.  I  think  they  lasted  about  three  years, 
and  they  were  broken  up  by  other  new  competi- 
tion starting,  or  by  some  men  not  being  willing 
to  act  up  to  the  agreement.  Of  course,  there 
was  no  legal  way  of  holding  a  man  to  his  agree- 
ment. We  had  no  written  agreement." 

Of  a  similar  order  was  the  Globe  Naval  Stores 
agreement,  by  which  four  operators  in  these 
products  pooled  their  businesses.  They  each 
agreed  to  act  as  agents  for  the  Globe  pool,  to 
report  all  transactions  daily  to  the  principal  of- 
fice, to  settle  all  profits  and  losses  in  account  with 
the  Globe  every  six  months,  to  apportion  output 
and  to  divide  territory.  This  agreement  began 
April  1,  1905,  to  run  for  five  years.  The  steel 
rail  pool  of  1888  bound  its  members  not  to  sell 
in  excess  of  current  allotments,  without  first  ob- 
taining the  consent  of  the  Board  of  Control  —  a 
clear  case  of  limiting  output.*  The  Michigan 
Lumber  Dealers'  Association  (1888)  was  or- 
ganized "  to  establish  the  equitable  principle  that 

*  Industrial  Combinations  and  Trusts,  W.  S.  Stevens. 
The  Macmillan  Company,  New  York.     Ch.  9. 


Restraints  in  Commercial  Practice         71 

the  retailer  shall  not  be  subject  to  competition 
with  the  parties  from  whom  he  buys." 

Such  violations  of  competitive  code  occurred 
where  producers  shipped  directly  to  consumers 
(builders),  ignoring  the  local  retailer.  The 
risks  to  capital  invested  in  the  retail  trade  were 
greatly  enhanced  thereby,  and  this  pool  sought 
self -protection  from  trade  practices  regarded  as 
unfair  within  its  own  class.  The  powder  pool,  in 
the  "Fundamental  Agreement"  of  1890-95, 
avowed  its  objects  to  be  "for  the  purpose  of 
avoiding  unnecessary  losses  in  the  sale  and  dis- 
position of  such  powder  by  ill-regulated  or  un- 
authorized competition  and  by  underbidding  by 
the  agents  of  the  parties  hereto,  and  for  the 
purpose  of  protecting  consumers  and  the  public 
from  unjust  fluctuations  in  prices  and  from  un- 
just discriminations."  By  this  agreement  the 
country  was  divided  into  seven  geographical 
districts  within  which  uniform  prices  were  to  pre- 
vail for  sporting  and  blasting  powder.  The  so- 
called  pools  in  the  steel  rail  industry,  as  Charles 
M.  Schwab  bore  witness,  were  simply  "agree- 
ments between  the  managers  at  the  various  works 
to  sell  steel  rails  at  the  same  price  at  the  same 
point." 

3.    Why  Pooling  Agreements  Failed 

Thousands  of  pooling  agreements  were  in 
force  in  the  period  prior  to  the  Interstate  Com- 
merce Act  of  1887,  both  in  industrial  and  in 


72  Trusts  and  Competition 

» 

mercantile  circles  of  business.  Their  prohibi- 
tion in  that  law  discredited  them  in  transporta- 
tion circles  at  least.  Long  before  that  date  pools 
in  many  corporations  had  given  place  to  more 
compact  forms  of  organization,  taking  either 
the  trust  form  or  that  of  the  holding  company. 
The  depression  of  1893-95  demonstrated  that 
something  more  than  a  "  gentlemen's  agree- 
ment" was  needed  in  most  cases  to  keep  indus- 
trial rivalry  from  going  to  unprofitable  limits. 
Steel  bars,  for  instance,  during  1899  went  up 
two  and  one-half  cents  a  pound  at  Pittsburgh 
in  the  boom  following  the  tariff  of  1897.  Within 
a  year  they  sold  below  a  cent  a  pound  in  a  vio- 
lent business  reaction.  "Under  the  best  con- 
ditions," testified  an  official  of  Jones  &  Laughlin, 
Limited,  "  it  would  require  an  average  of  eight 
to  ten  years  to  bring  the  manufacturers'  profit 
to  a  point  where  he  could  live."  * 

It  was  such  irregularity  in  prices,  due  to 
rapid  changes  in  conditions  of  demand  and  sup- 
ply, that  made  investment  in  industry  too  un- 
certain to  endure  on  the  old  basis  of  pooling 
without  the  law.  The  disease  had  ceased  to  be 
merely  industrial.'  It  had  become  financial  and 
was  undermining  the  credit  of  manufacturing 
corporations  among  which  these  evils  prevailed. 

In  the  wall  paper  industry  there  was  a  typical 
pooling  agreement,  to  secure  uniform  prices 

*  United  States  Industrial  Commission,  Vol.  XIII,  p. 
501. 


Restraints  in  Commercial  Practice        73 

and  terms  of  credit,  for  several  years  prior  to 
1873.  Hard  times  brought  on  severe  competi- 
tion, nullifying  the  pooling  obligations  which 
were  without  means  of  enforcement.  With  this 
came  the  usual  price  depreciation  and  unprofit- 
able business.  In  the  second  compact,  1880, 
security  of  insignificant  amount  was  given  by 
members  for  stricter  performance  of  the  agree- 
ment. In  due  time,  however,  abnormally  high 
prices,  following  combination  in  the  American 
Wall  Paper  Company,  disrupted  the  pool.  Mem- 
bers undersold  their  own  schedule  of  prices  and 
failed  to  report  as  they  had  agreed  to. 

These  alternating  depressions  and  booms, 
striking  both  extremes  of  price  movements, 
proved  equally  fatal  to  cooperation.  Again  a 
period  of  open  market  ensued,  prices  were  de- 
moralized, dealers  with  stocks  on  hand  suffered 
severe  losses  in  the  declines,  and  the  impaired 
credit  of  manufacturer  and  merchant  resulted 
in  failures  to  meet  liabilities.  Out  of  this  emer- 
gency, in  which  both  industrial  and  commercial 
competition  had  threatened  financial  ruin  to  the 
wholesale  and  retail  trades  alike,  the  makers  of 
wall  paper  combined  in  a  genuine  trust  organi- 
zation as  The  National  Wall  Paper  Company. 

Because  of  the  instability  of  these  pooling 
arrangements,  from  lack  of  discipline  through 
penalties  imposable  on  those  within,  as  well  as 
through  failure  to  guard  against  competitive 
assaults  from  without,  pooling  generally  failed 


74*  Trusts  and  Competition 

to  serve  its  purpose  as  a  means  of  eliminating 
excessive  competition.  Hence  it  was  abandoned 
in  favor  of  a  more  coherent  form  of  organiza- 
tion. There  is  no  doubt  that  pools  prevented 
waste  and  they  increased  profits  so  long  as  good 
demand  sustained  prices.  But  this  very  increase 
of  profits  in  turn  made  more  compact  control 
necessary  as  a  means  of  defense  against  unfavor- 
able conditions  of  trade.  Under  higher  profits 
severer  competition  came  in  again  to  unsettle 
market  conditions  and  bring  lower  prices.  Speak- 
ing of  this  in  its  effect  on  trade  understandings 
a  Pittsburgh  manufacturer  said :  "  Such  under- 
standings do  not  last  if  the  market  is  not  behind 
them.  If  prices  are  advancing  they  stand;  but 
if  prices  go  the  other  way,  they  do  not  last." 

4-    Re-Sale  Contracts  in  Mercantile  Field 

Agreements  between  manufacturers  and  mer- 
chants constitute  a  field  difficult  to  traverse  in 
drawing  the  line  of  demarkation  between  what 
is  freedom  and  what  amounts  to  restraint  or 
unlawful  control.  These  so-called  factors'  agree- 
ments, in  the  opinion  of  Stevens,  are  still  prob- 
ably very  numerous.  They  regulate  contract 
relations  between  producers  and  distributors,  in- 
cluding wholesale  and  retail  merchants.  They 
aim  at  price-fixing  and  at  restriction  of  com- 
petition. They  project  the  influence  of  the 
manufacturer  into  the  mercantile  sphere  to  an 
extent  that  has  raised  many  puzzling  questions 


Restraints  in  Commercial  Practice        75 

• 

as  to  how  the  manufacturer  may  legally  reach 
and  profitably  maintain  his  markets.  In  some 
cases  it  has  resulted  in  his  entering  the  retail 
business  directly  as  the  best  available  method  of 
selling  his  own  goods. 

Several  judicial  decisions  have  greatly  modi- 
fied the  status  of  the  question  within  the  past 
few  years.  After  the  mimeograph  case,  which 
gave  the  patentee  a  market  among  consumers 
of  necessary  supplies,  the  Miles  Medical  Com- 
pany decision  went  far  in  the  opposite  direction. 
It  declared  illegal,  both  at  common  law  and 
by  statute,  "a  system  of  contracts  between 
manufacturers  and  wholesale  and  retail  mer- 
chants by  which  the  manufacturers  attempt 
to  control  not  merely  the  prices  at  which  its 
agents  may  sell  its  products,  but  the  prices 
for  all  sales  by  all  dealers  at  wholesale  or 
retail,  whether  purchasers  or  sub-purchasers, 
eliminating  all  competition  and  fixing  the 
amount  which  the  consumer  shall  pay."  * 

By  this  and  other  decrees  it  is  now  fully  estab- 
lished that  the  manufacturer  of  patented  articles 
has  no  right  to  fix  the  price  at  which  jobbers, 
wholesalers,  or  retailers,  shall  re-sell  the  products 
of  his  factory.  Passing  of  ownership  does  not 
carry  with  it  any  sort  of  price  control.  The 
buyer  is  free  to  sell  what  he  owns  on  his  own 
terms  and  at  his  own  price,  even  though  it  be 
below  the  cost  of  production  or  under  factory 

*  Federal  Anti-Trust  Decisions,  Vol.  IV,  p.  1  (1911). 


76  Trusts  and  Competition 

• 

prices.  Nor  does  it  matter  whether  the  goods  be 
patented  or  not.  Trade-marked  products,  copy- 
righted books,  or  patented  medicines  —  all  alike 
are  no  longer  subject  to  the  restraints  of  price 
maintenance  by  the  producers  upon  retailers. 

One  effect  of  cutting  away  these  agreements 
which  pertain  to  price-fixing  has  been  to  throw 
open  to  the  freest  competition  the  dealings  of 
patentees,  licensees,  or  makers  with  wholesalers 
and  retailers.  They  are  all  on  a  level  with  others 
less  favored.  The  owner  may  not  use  his  patent 
to  extend  his  monopoly  of  manufacturing  into 
the  marketing  of  the  product. 

Another  effect  of  this  has  been  to  cancel  a 
vast  number  of  sale  contracts  that  were  in  force 
before  the  highest  court  of  the  land  declared 
them  to  be  contrary  to  the  anti-trust  law.  Job- 
bers, in  known  cases,  now  sell  without  any  price 
agreement  with  the  manufacturer  as  to  the  re- 
sale prices.  Manufacturers  try  to  convince  the 
jobber  of  what  in  their  judgment  is  a  fair  price; 
but  there  is  no  pressure.  As  a  result  the  free- 
dom of  the  jobber  has  led  to  his  pushing  business 
and  vastly  increasing  the  sales. 

The  main  purpose  of  the  re-sale  contract  was 
to  prevent  price-cutting.  The  issue  under  the 
Sherman  Act  was  fought  out  most  fully  in  the 
famous  book  trust  cases.  The  facts  and  conclu- 
sions, as  stated  by  the  U.  S.  Supreme  Court, 
were  as  follows :  "  It  appears  that  the  Publishers' 
Association  was  composed  of  probably  seventy- 


Restraints  in  Commercial  Practice        77 

five  per  cent  of  the  publishers  of  copyrighted 
and  uncopyrighted  books  in  the  United  States 
and  that  the  Booksellers'  Association  included  a 
majority  of  the  booksellers  throughout  the 
United  States;  that  the  Associations  adopted 
resolutions  and  made  agreements  obligating  their 
members  to  sell  copyrighted  books  only  to  those 
who  would  maintain  the  retail  price  of  such  net 
copyrighted  books,  and  to  that  end,  that  the 
Associations  combined  and  co-operated  with  the 
effect  that  competition  in  such  books  at  retail 
was  almost  completely  destroyed." 

The  Court's  conclusion  in  this  case,  based  on 
the  Bath  Tub  decision  relating  to  sales  control 
through  patents,  was  thus  stated :  "  No  more 
than  the  patent  statute  was  the  copyright  act  in- 
tended to  authorize  agreements  in  unlawful  re- 
straint of  trade  and  tending  to  monopoly,  in 
violation  of  the  specific  terms  of  the  Sherman 
law,  which  is  broadly  designed  to  reach  all  com- 
binations in  unlawful  restraint  of  trade  and 
tending  because  of  the  agreements  or  combina- 
tions entered  into  to  build  up  and  perpetuate 
monopolies."* 

Naturally  the  cutting  of  this  Gordian  knot 
produced  much  confusion  in  mercantile  circles. 
In  the  grocery  trades  "  free  deals  "  and  quantity 
prices  became  more  general.  The  fixed-price 
policy  assumes  that  the  retailer  could  not  be 
trusted  to  survive  without  it.  In  order  to  coun- 
*  Strauss  vs.  Am.  Publishers '  Assn.,  Dec.  1,  1913. 


78  Trusts  and  Competition 

teract  the  effects  of  this  upheaval  the  American 
Fair  Trade  League  was  organized  in  July,  1913, 
by  prominent  manufacturers  (1)  to  secure  to 
the  public  the  benefits  and  protection  of  stable 
uniform  retail  prices  upon  all  trade-marked  and 
branded  goods;  (2)  to  prevent  the  elimination 
of  the  small  retail  dealer  whom  price-cutting  de- 
partment stores  were  regarded  as  menacing; 
(3)  to  aid  in  re-establishing  and  insuring  fair 
competitive  commercial  conditions. 

5.    Rule  of  Reason  in  Trade  Restraints 

In  ordinary  language  the  three  terms,  com- 
petition, restraint  of  trade,  and  monopoly  are 
often  confused.  But  in  their  more  exact  mean- 
ing they  apply  to  three  different  degrees  of 
economic  activity.  Competition  is  an  act  in 
which  two  or  more  persons  seek  to  get  the  ad- 
vantage each  for  himself  in  a  common  transaction 
for  profit.  Restraint  of  trade  is  some  limitation 
put  upon  the  conditions  upon  which  this  rivalry 
is  shared.  And  monopoly  refers  to  cases  in  which 
the  advantages  are  narrowed  down  to  a  single 
individual  or  corporation  sufficiently  in  control 
of  the  situation  to  dominate  the  terms  of  the 
bargain.  The  three  purposes  of  the  Federal 
anti-trust  policy  are  (1)  to  restore  competitive 
conditions  as  between  trading  corporations; 
(2)  to  prevent  unreasonable  restraints  upon 
trade  between  the  states;  (3)  to  abolish  mo- 
nopoly. 


Restraints  in  Commercial  Practice        79 

Among  the  views  entertained  on  the  subject 
of  competition,  good  authority  holds  that  mere 
size  is  no  sin  against  the  law.  "The  merging 
of  two  or  more  business  plants  necessarily  elimi- 
nates competition  between  the  units  thus  com- 
bined. But  this  elimination  is  in  contravention 
of  the  statute  only  when  the  combination  is  made 
for  the  purpose  of  ending  this  particular  com- 
petition, in  order  to  secure  control  of  and 
enhance  prices  and  create  a  monopoly."  * 

On  the  other  hand  the  court  in  which  the  In- 
ternational Harvester  Company  was  adjudged 
guilty  took  the  ground  that  the  control  of 
eighty-five  per  cent  of  the  country's  output  of 
a  given  kind  of  implement  was  in  itself  a  trade- 
restraining  status  within  the  act. 

Contracts  in  restraint  of  trade  in  the  common 
law  do  not  appear  to  have  been  applied  to  any- 
thing but  personal  service,  trading,  and  ordinary 
business  relations.  When  a  man  bound  himself 
by  contract  not  to  labor  at  his  trade  "in  the 
realm,"  that  was  restraint  against  public  policy 
and  hence  forbidden.  When  a  merchant  sold 
his  business  to  another,  on  condition  that  he 
would  not  re-enter  in  that  place  as  a  competitor 
for  a  term  of  years,  that  was  held  at  common 
law  as  a  "reasonable  restraint  of  trade,"  and 
made  binding. 

Among  the  most  ancient  of  business  practices, 
interfering  with  freedom  of  trade  in  local  mar- 

*  Ex-President  Taf  t,  N,  7,  Sunday  Times,  1914. 


80 


Trusts  and  Competition 


kets,  are  the  threefold  offenses  of  forestalling, 
regrading,  and  engrossing  —  all  of  which  seek  to 
limit  or  monopolize  the  supply  and  are  con- 
demned at  common  law  as  unreasonable  and 
against  the  public  interests. 

No  doubt  the  most  paralyzing  feature  in  the 
Trust  Act  was  the  shifting  and  uncertain  inter- 
pretation given  to  the  term  "  restraint  of  trade." 
In  the  prevailing  opinion  by  Justice  Peckham, 
as  far  back  as  the  Trans-Missouri  decision 
(1897),  the  term  was  taken  to  include  all  con- 
tracts. In  the  Northern  Securities  case  Justice 
David  A.  Brewer,  whose  vote  was  the  decisive 
one,  said:  "Congress  did  not  intend 'to  reach 
and  destroy  those  minor  contracts  in  partial 
restraint  of  trade  which  the  long  course  of 
decisions  at  common  law  had  affirmed  were  rea- 
sonable and  ought  to  be  upheld.  The  purpose 
rather  was  to  place  a  statutory  prohibition  with 
prescribed  penalties  and  remedies,  upon  those 
contracts  which  were  in  direct  restraint  of  trade, 
unreasonable  and  against  public  policy." 

In  the  foregoing  statement  of  the  case  we  no 
doubt  have  the  transition  step  from  the  earlier, 
and  more  literal  interpretation  to  the  broader 
reading  of  the  spirit  of  the  Act,  as  it  first  found 
expression  in  the  Standard  Oil  decision  (1911). 
There  the  common  law  distinction  between 
reasonable  and  unreasonable  restraint  was  first 
brought  out.  It  was  for  the  court  to  decide, 
Chief  Justice  White  explained,  whether  any  par- 


Restraints  in  Commercial  Practice        81 

ticular  act  fell  within  the  class  of  prohibited 
things.  And  having  classified  the  act  complained 
of,  it  was  also  for  it  to  decide  "  whether  if  the 
act  is  within  these  classes,  its  nature  or  effect 
causes  it  to  be  a  restraint  of  trade." 

If  the  restraint  did  not  unreasonably  abridge 
the  freedom  of  trade  or  commerce  and  was  not 
against  public  policy,  then  it  was  not  contrary 
to  the  intendment  of  the  statute.  This  is  the 
"  Rule  of  Reason." 


CHAPTER  VI 

FEDERAL   POLICY    TOWARD    TRUSTS 

SO  FAR  as  the  Federal  statute  books  show 
there  are  now  three  main  acts  which  deal 
with  trusts  and  competition.  These  include  (1) 
"An  Act  to  protect  trade  and  commerce  against 
unlawful  restraints  and  monopolies,"  known  as 
the  Sherman  Anti-Trust  Act  of  July  2,  1890; 
(2)  "An  Act  to  create  a  Federal  Trade  Commis- 
sion," approved  September  26,  1913;  (3)  "An 
Act  to  supplement  existing  laws  against  unlaw- 
ful restraints  and  monopolies,"  which  became 
a  law  October  15,  1914.  To  these  should  be 
added  the  Interstate  Commerce  Act  whose  anti- 
pooling  clause  makes  it  really  an  anti-trust 
measure.  There  are  also  sections  of  acts  ap- 
proved in  1894  and  in  1913,  expressly  enumer- 
ated in  the  Federal  Trade  Commission  Act  of 
1914  (Sec.  4)  as  "anti-trust  acts." 

But  public  policy  is  expressed  not  alone  by 
laws  on  the  subject.  One  must  also  look  to  the 
Federal  Court  decisions  under  these  laws,  to  the 
special  investigations  of  complaints  of  their  vio- 
lations, to  the  effects  of  decrees  in  dissolution 
cases  and  to  the  conditions  which  have  brought 
about  amendments  to  the  laws  in  the  light  of 
experience. 

82 


Federal  Policy  Toward  Trusts  83 


1.    The  Sherman  Anti-Trust  Act 

Party  platforms  with  pronouncements  against 
the  trusts  began  to  appear  about  1885.  Within 
the  next  five  years  the  discussion  became  effective 
enough  to  record  itself  in  the  act  of  July  2, 
1890.  This  Act  is  generally  taken  as  giving 
statutory  expression  to  what  is  regarded  as  the 
common  law  on  the  subject  of  interference  with 
freedom  of  contracts  and  trade.  In  its  essential 
features  it  covered  two  primary  elements  of  busi- 
ness life  —  restraining  contracts  and  monopoliz- 
ing conduct  in  interstate  and  foreign  trade. 

(1)  The  Sherman  Act  declared  illegal  every 
commercial    restraint   under   any    of   the   three 
forms  of  (a)  contract,  (b)  combination,  trust  or 
otherwise,  or  (c)  conspiracy. 

(2)  It  pronounced   guilty   of  misdemeanor 
every  person,  corporation,  or  association  "  who 
shall  monopolize  or  attempt  to  monopolize  "  any 
part  of  interstate  or  foreign  commerce. 

(3)  It  authorized  the  federal  circuit  courts 
(a)  to  make  temporary  restraining  orders  pend- 
ing the  hearings  to  prevent  and  restrain  viola- 
tion by  parties  complained  of.    (b)    It  declared 
that  all   property   involved  under  such  alleged 
illegal    conditions    "shall   be    forfeited    to    the 
United    States    and    may    be    seized    and    con- 
demned." 

(4)  It  provided  for  recovery  by  the  injured 
party  of  threefold  damages  and  cost  of  suit. 


84  Trusts  and  Competition 

(5)  It  classified  violations  as  misdemeanors 
subject  to  a  fine  of  $5,000  or  not  over  a  year's 
imprisonment  or  both. 

There  is  little  doubt  but  that  the  attitude  of 
public  opinion  towards  trusts,  as  a  result  of 
which  the  anti-trust  act  was  passed,  was  largely 
the  outcome  of  hostility  engendered  by  such  cor- 
porations as  the  Standard  Oil  Company,  the 
Cordage  Trust,  the  Salt  Trust,  the  Wire  Trust, 
the  Whiskey  Trust,  and  the  Sugar  Trust.  This 
law  came  into  being  because  of  widespread  com- 
mercial abuses  prior  to  a  period  of  low  prices 
in  the  depression  of  1893-95.  The  states  had 
chartered  many  corporations  with  powers  that 
placed  little  or  no  restraint  upon  their  practices, 
resulting  in  an  extremely  lax  standard  of  inter- 
state competition.  Consolidations  pursued  high- 
handed methods  toward  competitors  by  price 
reductions,  only  to  advance  quotations  later. 
Sellers'  agreements  bound  distributors  to  ex- 
clusive contracts.  Vast  reserves  of  raw  materials 
were  bought  up  for  control  far  in  advance  of 
need.  Consolidated  properties  were  grossly 
over-capitalized.  Dividends  were  juggled  to  in- 
duce sales  of  securities  to  the  public.  Minority 
stockholders  and  the  rights  of  subsidiaries  were 
inadequately  protected.  The  progress  of  mo- 
nopoly within  the  different  fields  of  trade  and 
industry  became  such  as  to  cause  genuine  alarm. 
Especially  throughout  the  mercantile  and  the 
consuming  worlds  was  this  feeling  extant.  The 


I 
Federal  Policy  Toward  Trusts  85 

spread  of  combination  in  manufacturing  in- 
dustries through  the  control  of  markets  had 
brought  about  an  economic  revolution,  and  the 
Anti-Trust  Act  of  1890  was  a  care/ully  considered 
answer  to  that  tendency  by  some  of  our  wisest 
statesmen.  It  was  their  hope  that  by  giving  the 
common  law  of  the  land  a  statutory  form  the 
courts  might  correct  the  abuses  of  the  times  by 
remedies  in  keeping  with  the  equity  traditions 
of  free  industry  and  fair  trading.  Its  scope 
was  no  doubt  intended  to  be  essentially  indus- 
trial, and  not  until  1897  was  it  determined  that 
it  applied  to  railroads.  It  received  its  first  illu- 
minating construction,  in  its  commercial  imports, 
according  to  Governor  Charles  E.  Hughes  of  New 
York,  nine  years  after  its  passage  in  the  Ad- 
dyston  pipe  case.  Only  by  slow  stages  did  the 
courts  ascertain  in  the  course  of  years  what 
Congress  meant.  As  interpreted  from  time  to 
time  it  was  no  doubt  a  potent  instrument,  as 
President  Seth  Low  of  the  National  Civic  Fed- 
eration declares,  in  promoting  the  concentration 
of  commerce  in  few  hands.  Gradually  it  extended 
its  scope  until  manufacturing,  railroads,  labor 
organizations,  and  others,  as  well  as  commerce, 
were  made  amenable  to  it. 

2.  Investigations  of  Trust  Conditions 

It  cannot  fairly  be  said  that  anti-trust  legisla- 
tion or  decisions  have  been  reached  without  due 
inquiry.  In  no  part  of  the  administrative  pro- 


Trusts  and  Competition 


cedure  under  the  anti-trust  statutes  has  there 
been  more  careful  mastery  of  the  merits  of  the 
case  than  in  the  preliminary  investigations  fol- 
lowing1 complaints.  Much  of  the  information 
relating  to  the  history  and  practices  of  trusts 
has  been  gathered  by  the  Bureau  of  Corpora- 
tions in  the  Department  of  Commerce  and  Labor, 
a  Bureau  which  President  Roosevelt  had  hoped 
to  arm  with  administrative  powers  ample  enough 
to  correct  many  abuses  of  trust  methods.  These 
inquiries  went  far  to  establish  the  essential  facts 
in  the  industrial  and  commercial  record  of  lead- 
ing trusts.  A  far  more  thorough-going  agency 
of  investigation  and  of  administrative  control 
was  later  provided  in  the  Federal  Trade  Com- 
mission (September  26,  1914),  into  which  the 
Bureau  of  Corporations  was  incorporated. 

Five  large  industries  which  this  Bureau  of 
Corporations  investigated  have  all  been  sub- 
jected to  prosecutions  more  or  less  effective  in 
modifying  their  status  under  the  trust  law.  Be- 
ginning with  the  beef  industry  under  the  House 
resolution  of  March  7,  1904,  the  subjects  of 
petroleum  (Standard  Oil  Co.,  1907),  of  tobacco 
(American  Tobacco  Co.,  1909,  1911),  of  the 
steel  industry  (1911,  1912),  and  the  Interna- 
tional Harvester  Company  (1913),  were  all  in- 
vestigated in  the  course  of  eight  years.  In 
nearly  every  case  of  an  industry  investigated 
the  prosecution  which  followed  resulted  in  con- 
viction in  the  courts. 


Federal  Policy  Toward  Trusts  87 

There  were  five  separate  inquiries  on  the  part 
of  Congress  which  bore  directly  on  the  trust 
question.  All  of  them  looked  to  the  disclosure 
of  conditions  or  the  proposal  of  remedies  for 
abuses  actual  or  imagined.  These  congressional 
investigations  include  two  in  1911-12.  One  took 
the  form  of  hearings  before  the  Senate  Com- 
mittee on  Interstate  Commerce  and  the  other  of 
hearings  before  a  House  Committee  on  the  in- 
vestigation of  the  American  Sugar  Refining 
Company. 

Of  other  legislative  investigations  by  far  the 
most  elaborate  were  the  Stanley  investigation 
into  the  steel  corporation  (1912)  and  that  of 
the  Pujo  Money  Trust  investigation  into  the 
concentration  and  control  of  money  and  credit 
(1913).  Trust  legislation  was  the  subject  of 
extended  hearings  before  the  House  Committee 
on  the  Judiciary  (1913-14),  also  before  the 
Senate  Committee  for  Interstate  Commerce  of 
the  same  period.  A  veritable  mine  of  detailed 
information  is  to  be  found  in  the  Reports  of 
the  Industrial  Commission  made  between  1898 
and  1902. 

/  These  more  scientific  inquiries,  as  compared 
/with  the  congressional  hearings,  all  had  the  merit 
of  disclosing  actual  conditions,  analyzing  them 
in  their  more  vital  aspects,  and  summarizing  the 
methods  and  results.  One  of  the  best  specimens 
of  governmental  inquiry  is  found  in  the  report 
by  the  Bureau  of  Corporations  on  the  Interna- 


Trusts  and  Competition 

tional  Harvester  Company's  organization,  cap- 
italization, profits,  and  competitive  methods.  It 
finds  that  the  three  principal  factors  responsible 
for  the  position  attained  by  this  company  were 
(1)  combination  of  competitors;  (2)  superior 
command  of  capital;  (3)  certain  objectionable 
competitive  methods.  Next  to  the  combination 
of  principal  competing  companies,  amounting  to 
what  was  regarded  as  a  monopolistic  control  of 
the  harvesting  machine  business  proper,  was  the 
company's  exceptional  command  of  capital.  In 
the  company's  formation  its  working  capital  was 
provided  for  to  the  extent  of  $60,000,000.  The 
full  amount  of  this  was  actually  paid  in  cash, 
so  far  as  the  investigation  of  the  accounts  goes. 
The  objectionable  competitive  methods  were  re- 
garded as  rather  incidental  to  the  mainspring 
of  its  power,  namely,  the  consolidation  of  the 
country's  leading  competitive  plants  in  the  in- 
dustry with  vast  resources  of  working  capital, 
\enormously  enhancing  its  competitive  power. 

3.  Prosecutions  Under  the  Anti-Trust  Act 

Prosecutions  under  the  Anti-Trust  Act  were 
few  and  far  between  during  the  first  three  federal 
administrations.  Although  enacted  early  in  the 
second  year  of  Harrison's  presidency  (1889-93), 
only  eleven  bills  in  equity,  five  indictments,  and 
two  informations  for  contempt  comprised  the 
eighteen  cases  brought  before  the  courts  in  the 
first  eleven  and  a  half  years  of  the  Act.  Dur- 


Federal  Policy  Toward  Trusts  89 

ing  the  next  seven  and  a  half  years  of  Roose- 
velt's administration  forty-four  cases  were 
brought,  compared  with  eighty-nine  in  the  four 
years  under  President  Taft.  Each  of  these  presi- 
dential terms  was  marked  by  some  phase  of  prog- 
ress in  the  application  of  the  statute  to  the  trust 
situation.  The  Act  was  being  interpreted  judi- 
cially and,  so  to  speak,  applied  by  experiment. 
A  convenient  record  is  given  below  in  tabular 
form  of  the  prosecutions  under  the  Anti-Trust 
Act  from  July  2,  1890,  to  September  12,  1913. 


ADMINISTRATION       1 1  3  7    1 1 '  «      ^  § 

£  S        £        ^         £ 

Harrison  1889-1893  4           3         —             7 

Cleveland   1893-1897  4           2           28 

McKinley  1897-1901  3003 

Eoosevelt    1901-1909  18         25           1           44 

Taft    1909-1913  46         42           1           89 

Wilson   1913  to  5308 

Sept.  12 


Total  23         80         75          4         159 

Evidently  the  turn  in  the  enforcement  of  this 
statute  toward  the  far-reaching  application  of 
its  later  history  came  shortly  after  1900.  Ninety 
per  cent  of  the  prosecutions  occurred  during  the 
latter  half  of  the  Act's  history. 

"  The  decision  of  the  Supreme  Court  sus- 
tains, beyond  controversy,  the  proposition  that 
every  contract,  combination  in  the  form  of  trust 


90  Trusts  and  Competition 

or  otherwise,  or  conspiracy  having  for  its  pur- 
pose, or  directly  and  necessarily  affecting  the 
control  of  prices,  suppression  of  competition, 
creation  of  a  monopoly,  or  other  obstruction  or 
restraint  of  trade  or  commerce  among  the  states, 
is  made  illegal  by  the  Sherman  Act;  and  that 
every  person  who  shall  make  such  contract,  or 
engage  in  such  combination  or  conspiracy,  is 
guilty  of  a  misdemeanor  and  liable  to  fine  and 
imprisonment."  * 

Wherever  it  could  be  shown  by  the  facts  in 
the  case  that  agreements,  contracts  or  trusts 
existed  "with  the  obvious  intention  of  restrict- 
ing output,  dividing  territory,  fixing  prices, 
excluding  competition,"  or  attempting  to  mo- 
nopolize commerce,  there  the  policy  of  the 
administration  became  one  of  punishment  and 
prevention.  Where  no  intention  of  violating  the 
law  was  evident,  civil  proceedings  to  restrain 
continuance  without  instituting  criminal  pro- 
ceedings was  the  rule  followed.  The  Depart- 
ment of  Justice  on  its  own  account  carefully  in- 
vestigated all  complaints  of  combinations  and 
conspiracies  in  violation  of  the  Act  of  July  2, 
1890.  Many  of  these  complaints  proved  to  be 
without  warrant  and  others  without  the  hope  of 
the  federal  jurisdiction.! 

The  activity  of  the  Department  of  Justice 
may  be  gauged  by  the  fact  that  in  the  fiscal  year 

*  The  Attorney  General's  Report,  1910. 
f  Ibid,  1913,  p.  2. 


Federal  Policy  Toward  Trusts  91 

ending  June  30,  1913,  there  had  been  ten  anti- 
trust cases  pending,  while  in  the  official  report 
covering  the  next  fiscal  year  there  were  twenty- 
six  different  combinations  under  prosecution,  in- 
cluding the  coal,  powder,  shoe  machinery,  sugar, 
oil,  and  tobacco  trust  cases. 

4-  General  Results  of  Trust  Dissolution 

Much  criticism  has  been  spent  on  account  of 
alleged  shortcomings  in  the  dissolution  of  the 
trusts  under  adverse  decisions  of  the  Federal 
courts.  Most  of  this  has  been  directed  against 
the  oil  and  tobacco  cases.  The  main  contention 
has  been  that  the  decrees  did  not  go  far  enough. 
Neither  of  these  decrees  required  any  change  in 
individual  ownership  other  than  that  of  distribu- 
tion pro  rata  among  the  stockholders  of  the 
combination.  It  was  contended,  however,  espe- 
cially by  Assistant  Attorney  General  McRey- 
nolds,  later  Attorney  General  of  the  United 
States,  and  still  later  Associate  Justice  of  the 
Supreme  Court,  that  in  order  to  make  dissolu- 
tion effective  a  change  in  ownership,  obliging 
the  reorganizers  to  find  outside  purchasers  for 
millions  of  dollars  worth  of  security  should  have 
been  insisted  upon. 

Another  criticism  held  that  no  dissolution 
could  be  satisfactory  to  injured  parties,  for  of- 
fenses of  which  the  tobacco  or  oil  trust  were 
pronounced  guilty,  without  provision  being 
made  for  the  recovery  of  triple  damages  con- 


Trusts  and  Competition 


tained  in  Section  7  of  the  Anti-trust  Act.  The 
court,  however,  did  not  deem  this  necessary,  as 
part  of  the  "plan  or  method  of  dissolving  the 
combination  and  of  recreating,  out  of  the  ele- 
ments now  composing  it,  a  new  condition  which 
shall  be  honestly  in  harmony  with  and  not  repug- 
nant to  the  law."  '' 

That  competition  has  ensued  among  the  con- 
stituent corporations,  into  which  the  tobacco 
company  was  dissolved,  is  well  known  to  those 
who  have  taken  the  trouble  to  inform  them- 
selves about  the  facts.  The  decree  divided  the 
trust  into  four  large  companies,  and  the  result 
has  been,  in  the  eyes  of  competent  judges,  "a 
genuine,  strong  competition  between  these  four 
companies  by  advertising  and  cutting  prices,  so 
that  the  small  so-called  independent  companies, 
in  the  face  of  the  competition  between  the  large 
companies,  have  been  far  less  comfortable  than 
under  the  tolerance  of  the  tobacco  trust.  .  .  . 
The  four  companies  into  which  the  trust  was 
divided  are  trying  to  get  business  one  from  the 
other.  They  are  not  trying  to  drive  independent 
companies  out  of  business,  but  their  purpose  to 
win  business  in  competition  with  one  another 
leads  them  to  great  effort  and  expense."  f 

On  the  same  authority,  the  objection  to  the 
tobacco  decree  is  that  it  did  not  divide  up  the 
companies  into  small  enough  pieces  to  prevent 

*  American  Tobacco  Decision,  p.  27. 

fW.  H.  Taft,  N.  ¥.  Sunday  Times,  1914. 


Federal  Policy  Toward  Trusts  93 

effective  competition  —  a  result  which  would,  it 
is  claimed,  have  been  foreign  to  the  purpose  of 
the  statute  and  economically  unreasonable.  In 
the  Standard  Oil  case,  the  argument  against  the 
effectiveness  of  the  decree,  as  President  Taft 
claimed,  "is  based  on  the  fact  that  after  the 
decree  was  put  into  operation  the  stock  in  the 
individual  companies  increased  greatly  in  value." 
This  result  arose  from  the  necessity  of  distrib- 
uting equities  which  disclosed  to  the  market  large 
values  hitherto  not  fully  appreciated. 

It  appears  from  the  facts  thus  presented  that 
the  Federal  Department  of  Justice,  aided  by 
other  inquiries,  has  made  substantial  progress 
in  providing  an  effective  control  through  equity 
suits  whereby  the  essential  evils  in  trust  organi- 
zation and  practice  are  being  exorcised  from 
interstate  commerce.  The  virtue  of  this  control, 
quite  contrary  to  "big  business"  expectation, 
lies  not  only  in  preventing  the  abuses  and  wastes 
of  unfair  competition  but  also  in  curbing  the 
tendencies  to  monopoly  or  illegal  combination. 

This  restoration  of  economic  freedom  is  ac- 
complished by  means  of  the  injunction.  Under 
this  form  of  administrative  procedure  a  method 
is  being  developed  capable  of  relieving  trade 
among  the  states  of  any  illegal  condition, 
whether  it  arises  from  predatory  competition  or 
from  trade-restraining  combination.  To  make 
competition  salutary,  to  establish  freedom  and 
fairness  within  the  market  —  that  is  the  goal  of 


94  Trusts  and  Competition 

this  policy.  For  that  purpose  the  ends  of  jus- 
tice, as  expressed  in  the  Department's  pro- 
cedure, required  among  other  things : 

(1)  That    trade-restraining   agreements   be 
cancelled  where  necessary  to  render  illegal  com- 
bination   ineffective,    as    in   the   Powder    Trust 
decree  of  June  21,  1911. 

(2)  That  certain   enumerated  illegal  prac- 
tices, which  make  possible  the  renewal  or  per- 
petuation  of  types   of  unfair   competition,  be 
specifically    enjoined,    as    in   the    Pacific    Coast 
Plumbing  Supply  Association,  involving  twenty- 
four  corporations. 

(3)  That  an  open  market,  one  in  which  free 
and  fair  competition  actually  prevails,  be  made 
one   of  the   essential   conditions  through  which 
equitable  treatment  is  insured  in  trade  relations 
among  competitors. 

In  brief,  the  Courts  in  enforcing  the  anti- 
trust acts  are  gradually  formulating  anew  the 
legalized  standards  of  economic  freedom  (a)  by 
defining  what  is  free  in  principle;  (b)  by  for- 
bidding what  is  unfair  in  methods,  and  (c)  by 
formulating  the  accepted  canons  of  equitable 
business  conduct  within  whose  limits  economic 
efficiency  must  work  out  its  salvation. 

5.  More  Recent  Legislation  on  Trusts 

Most  recent  of  anti-trust  law  amendments  was 
the  Act  of  October  15,  1914,  entitled  "An  Act 
to  supplement  existing  laws  against  unlawful 


Federal  Policy  Toward  Trusts  95 

restraints  and  monopolies."  Just  as  the  Federal 
Trade  Commission  Act  of  September  26,  1914, 
was  expressly  made  to  prohibit  unfair  competi- 
tion so  the  one  enacted  nineteen  days  later  was 
designed  to  correct  certain  well-known  abuses 
whose  effect  was  to  substantially  lessen  competi- 
tion, "  to  restrain  commerce  or  to  tend  to  create 
a  monopoly  of  any  line  of  commerce." 

Of  these  forbidden  evils  there  were  five,  in- 
cluding (1)  price  discriminations;  (2)  exclusive 
or  "tying"  contracts,  involving  price-fixing 
agreements  or  re-sale  control ;  (3)  inter-corporate 
stock  acquisition,  excepting  for  investment  not 
resulting  in  any  substantial  lessening  of  com- 
petition;  (4)  interlocking  directorates  of  banks 
and  trust  companies  having  over  $5,000,000  of 
deposits,  capital,  surplus,  and  undivided  profits; 
also  all  corporations  whose  limit  of  like  assets 
is  $1,000,000;  (5)  dealings  of  $50,000  a  year 
on  the  part  of  common  carriers  with  corpora- 
tions having  the  same  officers,  and  providing  for 
"free  and  fair  competition  among  bidders." 

In  the  Trade  Commission  Act  its  sponsors 
had  in  mind  the  creation  of  a  regulative  tribunal 
with  powers  ample  enough  to  insure  free  and 
fair  business  activity  and  at  the  same  time  to 
correct  abuses  complained  of  among  industrial 
concerns.  In  the  grant  of  powers  the  Inter- 
state Commerce  Commission  was  taken  as  the 
standard.  The  danger  of  empowering  a  small 
group  of  men  with  too  much  inquisitorial 


Trusts  and  Competition 


authority  was  recognized.  Furthermore,  the 
type  of  control  and  investigation  exercised  by 
the  government  in  the  national  banking  system 
served  to  show  to  what  extent  public  examina- 
tion could  go  without  disclosing  legitimate  busi- 
ness secrets  to  competitors. 

The  labor  view  of  the  policy  of  making  labor 
associations  exempt  from  the  anti-trust  act  pre- 
vailed in  the  Clayton  amendments  thereto.  Sec- 
tion 6  of  the  Clayton  Act  reads: 

"That  the  labor  of  a  human  being  is  not  a 
commodity  or  article  of  commerce.  Nothing 
contained  in  the  anti-trust  laws  shall  be  con- 
strued to  forbid  the  existence  and  operation  of 
labor,  agricultural,  or  horticultural  organiza- 
tions, instituted  for  the  purpose  of  mutual  help, 
and  not  having  capital  stock  or  conducted  for 
profit,  or  to  forbid  or  restrain  individual  mem- 
bers of  such  organization  from  lawfully  carry- 
ing out  the  legitimate  objects  thereof;  nor  shall 
such  organizations  or  the  members  thereof,  be 
held  or  construed  to  be  illegal  combinations  or 
conspiracies  in  restraint  of  trade,  under  the  anti- 
trust laws." 

Organized  labor's  efforts  to  restrict  the  use 
of  injunctions  in  disputes  between  employers 
and  employes  was  to  a  large  extent  embodied  in 
Section  20  of  the  Clayton  Amendment.  By  this 
the  right  to  terminate  employment  and  of  "  per- 
suading others  by  peaceful  means"  (picketing) 
were  declared  lawful  under  anti-trust  statutes. 


CHAPTER  VH 

COMMAND  OF  CAPITAL  AND  CREDIT 

TTVERY  public  question  is  entitled  to  be 
•I—'  viewed  from  the  twofold  aspect  of  its  gen- 
eral purposes  and  of  its  specific  problems.  In 
the  discussion  thus  far  the  trust  in  its  more  the- 
oretical bearings  has  received  attention.  We 
have  viewed  from  the  outside  the  facts  and  the 
forces  of  its  evolution.  It  began  as  a  tendency 
and  has  now  acquired  the  status  of  an  institu- 
tion rooted  deep  in  our  economic  life.  The  re- 
sult of  our  examination  is  a  restatement  of  the 
leading  principles  of  its  guidance  and  control 
during  fully  a  quarter  of  a  century.  Briefly 
stated,  the  trend  of  legislation,  of  judicial 
decrees,  of  corporate  policy,  and  of  economic 
criticism  is  to  divide  the  field  between  competi- 
tion in  private  pursuits  and  monopoly  in  public 
service.  But  everywhere  are  corporate  combina- 
tions being  brought  under  stricter  public  con- 
trol. That  is  one  aspect  only.  In  this  time 
a  firmer  grip  has  been  gotten  on  the  application 
of  these  principles  —  legal,  economic,  and  admin- 
istrative—  to  the  solution  of  the  more  essential 
problems  arising  from  within.  This  marvelous 
growth  in  the  business  corporation  is  now  to  be 
97 


98  Trusts  and  Competition 

considered   from   the  viewpoint   of  its   internal 
developments. 

1.  Supply  of  Investment  and  Working  Capital 

Large-scale  production  is  continually  under 
the  necessity  of  adjusting  itself  to  changing 
conditions  in  the  pursuit  of  its  main  purpose  — 
to  gain  maximum  net  returns  on  its  investment. 
One  of  its  first  problems  is,  therefore,  to  assume 
that  form  of  organization  which  will  best  enable 
it  (1)  to  command  adequate  capital,  and  (2) 
to  reach  larger  markets.  It  has  been  often  said 
that  America  is  but  another  name  for  oppor- 
tunity. When  John  D.  Rockefeller  was  beseech- 
ing farmers  in  Indiana  to  sell  their  farms  to 
build  pipe  lines  out  of  the  proceeds,  his  main 
aim  was  to  get  capital  to  cut  out  the  railway 
costs  of  getting  products  to  market.  So  of 
the  trusts  in  general,  their  first  great  task  was 
to  get  capital  enough  to  take  advantage  of  an 
ever-enlarging  scale  of  marketing  goods.  To 
do  this,  combination  of  working  resources  as 
a  means  of  reaping  greater  profits  was  the  most 
available  method. 

One  of  the  financing  stages  of  trust  organi- 
zation is  admirably  outlined  in  Professor 
Mead's  portrayal  of  the  promoter  (Chaps. 
II-III.)  :  "The  advantage  which  the  trust  pro- 
moter sought  to  obtain  was  to  capitalize  the 
economies  of  combination,  sell  the  certificates  of 
capital,  and  obtain  a  share  of  the  proceeds  as 


Command  of  Capital  and  Credit         99 

his  own  profit." '  But  this  is  after  all  an  inci- 
dental phase  of  the  bigger  problem  of  obtaining 
an  adequate  supply  of  investment  and  working 
capital  as  the  most  essential  means  of  increasing 
profits  and  extending  markets.  The  promoter 
was  not  really  the  power  behind  the  throne  of 
America's  big  business  developments.  He  was 
rather  the  midwife  than  the  parent.  The  real 
dynamics  in  this  industrial  growth  was  the 
world's  faith  in  the  future  of  America  —  a 
faith  that  took  our  securities  and  salted  them 
away  in  the  investor's  boxes  of  Europe  and 
America,  or  temporarily  held  them  for  expected 
enhancement  in  value.  In  this  work  of  issuing 
and  distributing  securities  the  banking  and  the 
speculative  agencies  of  the  world  played  a  much 
larger  and  a  more  enduring  role  than  the  pro- 
moter. 

Nothing  but  confidence  in  the  earning  power 
of  American  industries  could  have  attracted  so 
vast  an  investment  fund  as  flowed  into  large- 
scale  enterprises,  especially  from  1895  to  1902. 
According  to  Commissioner  Luther  Conant 
that  was  the  most  active  period  of  consolida- 
tion. His  estimate  of  the  stocks  and  bonds 
issued  by  eighty-seven  consolidations  between 
1887  and  1897  was  $1,414,294,000.  But  within 
the  next  three  years  (1898-1900)  149  consoli- 
dations were  capitalized  at  $3,784,000,000.  In 

*  Corporation  Finance,  E.  S.  Mead.  D.  Appleton  & 
Co.,  New  York.  Chs.  II-III. 


100 


Trusts  and  Competition 


an  informing  study  of  the  investment  merits  of 
industrial  securities,*  Dr.  A.  M.  Sakolski  sum- 
marizes the  security  situation  at  that  period  of 
"undigested"  issues  as  follows: 


Defects 

1.  Over-capitalization 

2.  Insufficient  working  cap- 

ital 

3.  Insufficient  integration 

4.  Inexperience  with  condi- 

tions 


Merits 

1.  Conservative  dividend 

policy 

2.  Build  up  capital  surplus 

3.  Better     knowledge     of 

markets,  etc. 

4.  Stability    of     earnings, 

etc. 


All  of  these  defects  were  the  marks  of  pro- 
motion bent  upon  manufacturing  securities  for 
the  purpose  of  unloading  them  on  the  public. 
All  of  these  merits  were  in  no  small  part  the  re- 
sult of  banker  and  business  management  aiming 
to  build  safely  out  of  the  investors'  supply  of 
capital. 

2.  Capitalization  and  Promoter's  Profits 

Nevertheless,  in  spite  of  the  odium  attached, 
promotion  of  combinations  between  1890  and 
about  1910,  covering  a  period  of  twenty  years, 
came  to  be  recognized  almost  as  a  new  financial 
profession.  In  rank  the  promoter  stood  on  a 
par  with  the  trust  lawyer  and  the  trust  manager. 
It  was  the  function  of  the  promoter  to  bring 
various  proprietors  together  on  some  scheme  of 
consolidation  to  which  the  participants  were  will- 

*  Journal  of  Accountancy,  July,  1911. 


Command  of  Capital  and  Credit       101 

ing  to  affix  their  signatures.  It  was  the  function 
of  the  trust  lawyer  to  see  how  near  promoting 
genius  could  go  to  the  quick  of  the  law  in  ef- 
fecting combination  of  maximum  capitalization. 
The  work  of  the  third  functionary,  the  super- 
visor, the  commissioner,  or  manager  of  the  com- 
bination, was  to  enforce  penalties  and  maintain 
discipline  both  in  the  industrial  and  the  com- 
mercial end  of  the  business. 

It  was  to  the  promoter's  interest  generally  to 
work  for  a  capitalization  as  large  as  was  salable. 
All  that  the  speculative  appetite  would  take  he 
would  give  it.  On  that  account  his  estimates 
of  the  valuation  of  the  separate  plants  invited 
to  enter  the  trust  were  often  liberal  beyond  the 
hopes  of  their  owners.  Price  was  not  a  ques- 
tion of  his,  so  long  as  the  public  paid  for  it. 

Much  of  this  promoting  was  done  in  periods 
of  extraordinary  prosperity,  and  then  on  the 
basis  of  net  earnings.  The  ill-fated  American 
Bicycle  Company  was  made  up  out  of  plants 
which  for  a  given  period  had  net  earnings  of 
$3,500,000.  This  sum  added  to  the  estimated 
values  of  the  properties  gave  total  assets  exceed- 
ing $20,000,000.  On  this  basis  the  authorized 
capital  of  the  company  was  placed  at  $35,000,- 
000  preferred  and  $45,000,000  common  stock, 
of  which  $10,000,000  preferred  was  issued  and 
$20,000,000  common  together  with  $10,000,- 
000  of  five  per  cent  twenty-year  debentures.  The 
organizer  of  the  bicycle  trust  bought  the  prop- 


Tfusrs  and  Competition 


erties  from  the  sellers  with  so  much  of  the  pre- 
ferred and  common  stock  as  was  required  by 
his  bargain  with  them,  retaining  the  remainder 
in  his  own  hands  as  promoter's  profits. 

One  strong  purpose,  probably  the  strongest, 
in  over-capitalization  is  to  conceal  profits.  As 
Greene  originally  pointed  out,*  the  prejudice 
in  the  public  mind  against  high  rates  of  profit 
or  dividends  resulted  in  capitalizing  the  surplus 
assets  by  stock  distribution.  To  this  device  the 
Standard  Oil  Company,  for  instance,  never  re- 
sorted. Its  properties  are  in  this  sense  generally 
under-capitalized.  In  other  cases,  the  rule,  in 
consolidating  several  companies,  is  to  capitalize 
promotion  services,  good  will  of  original  owners, 
business  connections  and  intangible  assets  by 
issues  of  common  stock.  Thus  the  future  basis 
of  claims  on  dividends  is  broadened  while  the 
necessity  for  working  capital  is  ignored  or 
scantily  met. 

It  was  much  the  same  in  other  formations. 
The  single  industry  on  going  into  the  first  con- 
solidation probably  doubled  its  security  capitali- 
zation. When  the  next  step  was  taken  into  the 
trust  proper,  its  promotion  may  have  called  for 
another  increase,  in  order  to  capitalize  oppor- 
tunity for  enhanced  earning  power  due  to  a  more 
complete  control  of  the  market.  But  that  was 
not  the  end.  The  Tin  Plate  Trust,  the  Steel 

*  Corporation  Finance,  T.  L.  Greene.    G.  P.  Putnam  's 
Sons,  New  York. 


Command  of  Capital  and  Credit       103 

Hoop,  and  the  Sheet  Steel  were  each  so  highly 
capitalized  as  separate  trusts  as  to  amount  to 
a  total  of  $144,000,000  late  in  the  nineties.  Yet 
within  the  next  few  years  (1902)  they  were 
taken  into  the  Steel  Trust  at  $219,000,000. 

One  can  easily  see  now  how  such  a  persistent 
inflation  of  security  issues  might  cripple  busi- 
ness in  its  borrowing  of  capital.  If  every  reor- 
ganization were  to  call  for  a  new  dose  of  inflated 
issues,  based  on  an  earning  power  which  left 
years  of  adversity  out  of  account,  then  the 
premium  is  put  on  skinning  the  maintenance  ac- 
count for  big  book  profits  as  a  new  basis  for 
reorganization.  Yet  this  whole  method  of  pro- 
cedure, Fay  claims,  "  is  honest  enough,  if  the 
earnings  justify  the  capitalization  and  the 
prices  at  which  the  shares  are  distributed."* 

3.  Risk  Elements  in  Trust  Capitalization 

Yet  over-capitalizing  has  its  legitimate  uses. 
In  corporate  issues  bonds  are  taken  to  represent 
the  value  of  the  actual  property  as  a  going  con- 
cern with  a  considerable  margin  of  safety  even 
in  the  least  prosperous  periods  of  business.  The 
preferred  stock  is  regarded  as  representing  that 
portion  of  the  demonstrated  net  earning  power 
which  can  be  certainly  spared  after  deducting 
interest  on  bonds  from  net  income.  Where  that 

*  A  lucid  exposition  of  over-capitalization  in  railway 
fields  is  given  in  Railroad  Promotion,  F.  A.  Cleveland. 
Longmans,  Green  &  Co.,  New  York.  Ch.  XVII. 


104  Trusts  and  Competition 

preference  income,  so  to  speak,  is  especially  as- 
sured, it  is  indicated  in  making  the  preferred 
dividend  cumulative.  That  is,  if  not  paid  as  due 
it  accumulates  as  a  charge  to  be  paid  later  in 
full.  Finally  the  common  stock  represents  the 
risks  and  potentialities  often  of  undemonstrated 
values  of  the  company's  net  earning  capacity. 
They  who  take  the  risks  want  title  to  the  con- 
tingent outcome,  and  they  get  it  in  common 
stock. 

It  is  thus  seen  that  common  stock,  which  is 
to  a  large  extent  speculative  in  character,  im- 
proves with  aging  under  good  management.  It 
means,  among  other  things,  a  title  to  oppor- 
tunities, to  latent  resources.  As  earnings  are 
put  back  into  the  company,  the  potential  be- 
comes real  value.  That  in  turn  is  expressed  in 
the  rising  price  of  the  security  in  question  re- 
flecting higher  surplus  income.  How  the  market 
price  of  such  a  security  varies  as  the  "water" 
is  being  eliminated,  is  shown  by  a  calculation 
given  below,  covering  nine  years  of  the  Steel 
Corporation's  history,  from  1902  to  1910. 

Mean 

Earned  on  prices  Water  in 

"Year                     common,  %  com.  stock  capital 

1902 10.7  38  $625,353,559 

1903 5.0  25  635,989,021 

1904 1.0  21  626,591,046 

1905 8.5  31  567,158,314 

1906 14.3  41  487,574,093 

1907 15.6  36  395,399,210 

1908 4.0  42  375,551,303 


Command  of  Capital  and  Credit       105 


Mean, 

Earned  on 

prices 

Water  in 

Year 

common,  % 

com.  stock 

capital 

1909  

10.6 

68 

330,855,512 

1910.. 

12.2 

76 

281,051,222 

The  same  general  policy  of  fortifying  the 
market  value  of  the  common  stock  probably  went 
on  at  a  slower  rate  for  the  next  three  years,  when 
common  earned  8.9,  5.7  and  11  per  cent  respect- 
ively, and  its  average  prices  were  66,  74  y2  and 
59J^.  At  the  end  of  1914  the  common  capital 
stood  at  $508,302,500,  of  which  over  half  may 
have  represented  real  value. 

It  is  estimated  that  between  1902  and  1909, 
in  which  time  this  common  stock  rose  from  38 
to  68,  or  $30  a  share,  the  total  of  $300,000,000 
of  "water"  was  eliminated.*  According  as  the 
single  undeveloped  asset  of  1,200,000,000  tons 
of  iron  ore  were  valued  higher  or  lower,  the 
company's  common  stock  was  calculated  to  have 
a  higher  or  lower  value.  The  company's  giving 
it  a  book  value  of  $600,000,000  made  Steel 
Common  worth  $150.  The  government's  val- 
uation of  $134,000,000  made  the  stock  average 
$44.70  a  share.  The  one  had  in  mind  the  cost 
of  duplication,  the  other  an  idle  property  to 
be  used  far  in  the  future. 

Capitalization  of  industrials,  railways,  or  pub- 
lic utilities  is  closely  related  to  all  questions  of 
prices  and  rates.  State  commissions  consider  it 

*  P.  V.  Davis  in  The  Independent,  October  19,  1911. 


Trusts  and  Competition 

necessary,  at  the  very  start  of  their  labors,  \Q 
find  an  answer  to  the  question,  What  is  the  fair 
value  of  a  given  electric  plant,  a  street  railway 
property  or  an  inter-urban  line?  Shall  it  be 
figured  on  the  original  cost  or  going  value,  or 
on  cost  of  reproduction?  The  conclusion  of  Hal- 
ford  Erickson  of  the  Wisconsin  Railroad  Com- 
mission, not  only  utilizes  both  as  advisable,  but 
recognizes  the  necessity  of  including  develop- 
mental costs,  depreciation  and  other  risks.  Of 
the  latter  he  says :  "  Public  utilities  are  not 
wholly  free  from  risks  to  investors.  If  investors 
therein  must  bear  losses  from  decreasing  prices, 
is  it  fair  to  deprive  them  of  profits  from  in- 
creases in  prices?  .  .  .  Would  not  the  elimina- 
tion of  such  profits  be  reflected  in  higher  rates 
of  interest  for  needed  capital?" 

On  this  the  Courts  have  not  said  their  last 
word.  How  far  earning  capacity  enters  into 
rate-making  principles  in  corporations  exempt 
in  the  main  from  competition,  and  therefore 
from  competitive  risks,  is  ably  discussed  in  a 
pamphlet  by  the  same  official.* 

4-     Use  and  Abuse  of  Over-Capitalizing 

The  mistake  is  usually  made  in  allowing  those 
who  take  stock  for  promotion  and  properties  to 
work  it  off  at  once  through  the  stock  market 
or  any  other  way.  France  requires  her  pro- 
moters and  sellers  of  property  to  hold  such  se- 

*  Valuation  of  Public  Utilities,  Halford  Erickson,  1912. 


Command  of  Capital  and  Credit       107 

curities  for  two  years,  thus  protecting  values 
and  safeguarding  legitimate  industry.  Other- 
wise inflation  is  the  certain  effect  of  such  heavy 
flotations  marketed  after  the  usual  plan.  An 
underwriting  syndicate  with  options  in  hand  at 
high  figures  for  the  concerns  to  be  combined,  ar- 
ranges to  pay  for  them  in  stock  of  the  combina- 
tion. It  has  no  time  to  lose.  "  It  arranges  for 
the  new  issues  to  be  listed  on  the  Stock  Ex- 
change, where  they  are  made  'active'  by  many 
brokers  who  had  been  let  in  on  the  underwriting 
of  the  whole  scheme.  This  speculative  activity 
before  long  would  result  in  distributing  many 
millions  of  new  shares,  bought  for  a  rise  by 
traders  in  stocks  and  so  taken  off  the  hands  of 
the  syndicate."  * 

Over-capitalizing  consists  in  the  issue  of  stocks 
and  bonds  in  excess  of  the  property  equivalents 
of  the  corporation's  possessions.  This  excess 
is  usually  known  as  "watered"  stock  or  bonds. 
Where  this  rule  of  capitalization  is  followed  the 
"watered"  issue  is  usually  small.  But  where 
earning  power,  actual  or  assumed,  is  made  the 
basis  of  capital  issue,  the  opportunity  for  abuses 
is  far  greater,  f 

Under  the  inflation  of  capital  values,  in  the 
financing  of  combinations,  a  large  part  of  the 

*  Big  Business  and  Government,  C.  N.  Fay.  Moffat, 
Yard  &  Co.,  New  York. 

t  This  aspect  is  critically  discussed  by  E.  S.  Mead  in 
his  Trust  Finance,  D.  Appleton  &  Co.,  New  York,  chs. 
XVI-XVII. 


108  Trusts  and  Competition 

capitalization  stands  for  some  of  the  most 
uncertain  qualities  and  conditions  in  commercial 
and  industrial  experience.  A  Hawaiian  sugar 
combination  capitalized  its  property  fourfold, 
including  "climate"  at  more  than  $1,000,000, 
or  twenty-five  per  cent  of  the  total.  Yet  this 
is  the  thing  with  which  the  stock  market  occu- 
pies itself  in  trading  and  the  general  public 
is  supposed  to  buy  or  sell  as  of  actual  value. 
A  combination  of  twenty-five  manufacturing 
plants  into  a  single  trust  created  a  degree  of 
monopoly,  otherwise  known  as  capacity  to  con- 
trol the  markets  and  beat  competitors.  This 
alleged  advantage  the  promoters  immediately 
capitalized  without  testing  its  capacity  to  with- 
stand competition.  They  forthwith  distributed 
certificates  of  stock  pro  rata  to  the  unrealized 
prospect. 

5.     Banking  Credit  and  Trust  Control 

By  reason  of  the  dependence  of  trust  financ- 
ing upon  leading  banking  institutions  for  under- 
writing and  marketing  their  securities  financial 
control  becomes  direct  and  highly  concentrated. 
In  the  capacity  of  fiscal  agents  these  leading 
banking  interests  give  continuity  to  that  rela- 
tionship. This  in  itself  tends  to  perpetuate 
the  dependence  of  trusts  upon  the  single  insti- 
tution or  group  of  bankers  who  have  become 
accustomed  to  act  together  in  syndicate  opera- 
tions or  otherwise.  Nowhere  has  there  been 


Commcmd  of  Capital  and  Credit       109 

greater  cooperation  in  limitation  of  competi- 
tion than  in  the  field  of  money  and  credit. 

On  this  matter  the  conclusions  of  the  Pujo 
Committee,  which  investigated  the  subject  for 
the  House  of  Representatives  early  in  1913,  are 
highly  pertinent.  This  report  said : 

"Far  more  dangerous  than  all  that  has 
happened  to  us  in  the  past  in  the  way  of 
eliminating  of  competition  in  industry  is  the 
control  of  credit  through  the  domination  of  these 
groups  over  banks  and  industries.  It  means 
that  there  can  be  no  hope  of  revived  competition 
and  no  new  ventures  on  a  scale  commensurate 
with  the  needs  of  modern  commerce  or  that  could 
live  against  combinations,  without  the  consent 
of  those  who  dominate  these  sources  of  credit. 
A  banking  house  that  has  organized  a  great 
industrial  or  railway  combination  or  that  has 
offered  its  securities  to  the  public,  is  represented 
on  the  board  of  directors  and  acts  as  its  fiscal 
agent,  thereby  assumes  a  certain  guardianship 
over  that  corporation. 

"  If  competition  is  threatened  it  is  manifestly 
the  duty  of  the  bankers,  from  their  point  of 
view  of  the  protection  of  the  stockholders  as 
distinguished  from  the  standpoint  of  the  public, 
to  prevent  it  if  possible.  If  they  control  the 
sources  of  credit  they  can  furnish  such  protec- 
tion. It  is  this  element  in  the  situation  that 
unless  checked  is  likely  to  do  more  to  prevent 
the  restoration  of  competition  than  all  other  con- 


110  Trusts  and  Competition 

ditions  combined.  This  power,  standing  between 
the  trusts  and  the  economic  forces  of  competi- 
tion, is  the  factor  that  is  most  to  be  dreaded 
and  guarded  against  by  the  advocates  of  re- 
vived competition."  * 

This  investigation  of  the  concentration  of 
control  of  money  and  credit  no  doubt  disclosed 
a  serious  evil.  But  whether  it  was  the  result 
of  a  monopolizing  purpose  among  leading 
financiers,  or  the  natural  consequence  of  a  defec- 
tive banking  and  currency  system,  is  debatable. 
The  findings  of  the  Pujo  Committee  were  in 
favor  of  the  former  view.  On  the  other  hand 
the  statement  of  J.  P.  Morgan  &  Co.,  in  the 
analysis  of  causes  and  conditions  making  for 
money  and  credit  concentration,  laid  the  result 
to  the  following:  (1 )  that  our  antiquated  bank- 
ing system,  forced  reserves  into  New  York  auto- 
matically, thus  causing  undue  concentration; 
(2)  that  the  average  demand  for  credit  through- 
out the  world's  money  markets  determines  interest 
rates,  and  not  the  banks  of  New  York  by  com- 
bination; (3)  that  the  panic  of  1907  was  not 
caused,  as  the  committee  intimated,  by  machina- 
tions of  certain  powerful  men,  but  that  these 
very  men  helped  effectively  to  check  and  com- 
pose it  by  putting  funds  at  the  service  of  wreaker 
members  of  the  community ;  ( 4 )  that  practically 
all  the  railway  and  industrial  development  of 
this  country  has  taken  place  through  the  agency 

*Pujo  Committee's  Report,  H.  E.,  62nd  Cong. 


Command  of  Capital  and  Credit       111 

of  the  large  banking  houses,  and  that  repre- 
sentation on  boards  of  directors  of  railways  and 
industrial  corporations  has  been  for  the  purpose 
not  of  control  but  of  cooperation  in  the  interests 
of  the  investors,  to  whom  the  banking  houses 
have  felt  responsible  through  the  securities  sold 
them  as  clients.  This  function  of  trusteeship 
stands  out  as  one  of  the  distinguishing  features 
in  the  services  which  the  great  banking  institu- 
tions of  New  York  and  other  centers  render  on 
behalf  of  investors,  large  and  small.  Concentra- 
tion of  money  and  credit  has  come  partly  as  a 
normal  growth  in  the  progress  of  wealth,  com- 
merce, and  industry ;  and  partly  as  an  abnormal 
growth  under  laws  and  banking  conditions  which 
business  had  long  since  outgrown.  There  is  far 
more  competition  and  far  less  combination  than 
is  commonly  supposed. 


CHAPTER  VIII 


PRICES   TINDER   THE   TRUST  REGIME 


of  the  avowed  objects  of  centralizing 
control  in  industry  is  to  stabilize  prices,  to 
prevent  that  deadly  sinking  of  price  levels  which 
eliminates  profits.  This  arrest  of  decline  in 
prices  is  accomplished  by  means  of  tipping  the 
balance  against  supply  and  in  favor  of  demand. 
To  this  end  restriction  of  production  is  the  direct 
path.  In  fact,  this  is  one  of  the  main  aims  in 
trust  organization  —  to  prevent  such  demoraliza- 
tion as  comes  from  the  tendency  of  production, 
under  large-scale  machine  industry,  from  exceed- 
ing consumption.  Most  of  the  evils  of  gluts, 
"  dumping,"  and  price  wars  came  from  this  ten- 
dency to  over-supply  of  consumption  goods  in 
specific  lines  of  production. 

But  this  restriction  does  not  stop  here.  To 
stabilize  price  levels  is  one  thing;  to  so  utilize 
the  advantage  as  to  secure  progressively  higher 
prices  is  quite  another.  The  course  of  wholesale 
prices,  during  the  year  from  1896  to  1913 
illustrates  the  tendency  not  only  to  restore  for- 
mer levels,  but  to  go  far  beyond  them  under  the 
present  state  of  industrial  control. 

l.«  Course  of  Wholesale  Prices,  1890-1913 

The  following  price  diagram  from  the  Bureau 
of  Labor,  Washington  (March,  1913),  con- 


Prices  Under  the  Trust  Regime        113 

trasts  sharply  the  trends  of  wholesale  prices  of 
raw  and  manufactured  goods,  first  under  the 
competitive  system  (1891-1896),  and  then  under 
the  trust  regime  (1897-1913),  when  restriction 
of  supply  became  a  part  of  industrial  policy 
in  the  alleged  effort  to  give  stability  to  prices. 
ise  in  prices  beginning  with  1897  cannot 
be  entirely  laid  to  combination.  Part  of  the 
advance  was  due  to  normal  reaction  from  undue 
depression.  But  apart  from  this  general  con- 
dition the  actual  causes  were  chiefly  ( 1 )  increase 
in  gold  production;  (2)  increase  in  population; 
(3)  widening  of  the  area  of  production  and 
marketing  in  the  world's  trade. 

The  period  in  which  these  great  industrial 
combinations  had  their  growth  was  also  one  of 
vast  extension  in  the  scope  of  commerce,  of  the 
world's  greatest  human  migrations  from  older 
to  newer  lands,  and  of  increase  in  the  wealth 
and  population  of  nations. 

The  statistical  returns  on  which  this  diagram 
is  based  show  that  the  upward  swing  of  com- 
modity prices  coincides  largely  with  the  period 
of  greatest  expansion  in  the  trust  movement. 
The  depression  became  acute  by  1893,  and 
began  its  recovery  after  1896.  From  that  time 
forward,  coinciding  with  the  recovery  of  busi- 
ness in  the  latter  year,  trust  financing  proceeded 
on  a  colossal  scale.  Profits  were  measured  by 
gains  in  prices  in  floating  securities.  Prices 
between  1896  and  1912  for  raw  materials  rose 


RELATIVE  PRICES  OF  RAW  AND  MANUFACTURED  COMMODITIES,  1890  TO  1913. 
[Average  for  1890  to  1899  - 100.0.] 


1990  mi  UK  ten  •**  ax  me  ion  m*  m  noo  not  am  ixo  not  /aos  isos  act  oas  tx*  ign  19/1  an  no 


— Bureau  of  Labor. 


Prices  Under  the  Trust  Regime        115 

from  a  basis  of  84  to  148,  or  seventy-six 
per  cent.  By  1900  raw  materials  were  33.6 
higher  than  the  average  for  the  preceding 
twenty-two  years,  and  manufactured  commodi- 
ties were  17.7  per  cent  higher,  making  an  aver- 
age for  all  commodities  of  20.9  per  cent.  Owing 
to  this  fact,  that  the  general  price  movement 
was  mainly  upward  it  is  difficult  to  refute  the 
claim  that  the  trusts  were  among  the  contribu- 
tory causes  of  advancing  prices.  But  they 
were  not  alone;  favoring  conditions  were  gen- 
eral. During  the  depression  of  1893  to  1897 
there  occurred  one  of  those  general  exhaustions 
of  reserves  both  visible  and  invisible.  Universal 
economy  in  consumption  of  manufactured  prod- 
ucts left  the  reserves  of  the  world's  stock  bare 
and  depleted.  Of  this  situation  the  combinations 
took  advantage.  The  rapid  advance  of  prices 
which  followed  in  many  commodities  when  busi- 
ness revived  was  also  aided  much  by  the  great 
elasticity  of  demand  sure  to  develop  with  the 
return  of  better  times.  Not  until  near  1900 
were  the  supplies  replenished  fully  enough  in 
many  staple  lines  of  industry  to  build  up  a 
secondary  line  of  supply. 

#.     The  Retardation  of  Rate  of  Supply 

Trust  control  of  the  market  comes  through 
command  of  the  situation  on  the  supply  side. 
This  is  its  line  of  attack  of  the  price  problem. 
A  pertinent  criticism  of  this  aspect  of  trust 


116  Trusts  and  Competition 

policy  is  advanced  by  Prof.  J.  A.  Hobson.* 
According  to  his  view  the  growth  of  trusts, 
cartels,  and  various  orders  and  degrees  of  com- 
bination in  many  highly  organized  trades  in 
England  and  North  America  can  only  be  inter- 
preted as  restraints  upon  supply  of  goods.  Their 
ralson  d'etre  is  the  maintenance  of  prices  on  a 
profitable  basis  by  limitation  of  output.  For 
in  no  other  way  can  profitable  prices  be  main- 
tained. The  tendency  toward  over-production 
has  been  the  invariable  plea  for  the  utility  of 
these  organizations.  They  must,  therefore,  be 
understood  as  instruments  for  keeping  the  rate 
of  supply  of  goods  in  the  industries  where  they 
operate  lower  than  it  would  have  been  had  they 
not  existed.  Though  there  are  other  economies 
of  combination,  this  is  the  main  and  essential 
result  —  to  regulate,  i.e.,  to  retard,  the  rate 
of  production. 

If  it  be  true  that  the  trust  system  of  industry, 
by  its  price  maintenance  policy,  secures  stability 
of  values  by  control  of  supply,  we  have  to  that 
extent  removed  from  the  business  field  the  auto- 
matic capacity  of  the  market  for  adjustment 
to  higher  and  lower  levels.  In  other  words, 
the  free  play  of  economic  forces  being  limited 
in  scope,  those  transitions  to  different  levels 
by  which  production  under  the  competitive  sys- 
tem alternately  stimulates  or  checks  the  opera- 
tions of  demand,  are  made  to  recur  less  fre- 

*  Gold,  Prices,  and  Wages,  p.  113. 


Prices  Under  the  Trust  Regime        117 

quently,  if  also  less  violently.  Demand  under 
such  a  system  of  control  tends  to  become  sta- 
tionary rather  than  elastic.  Prices  vary,  but 
within  narrower  limits.  Instead  of  inducing 
increased  demand  by  lowering  quotations,  the 
whole  structure  of  the  market  rests  on  the  basis 
of  a  more  or  less  uniform  price-level.  There  is 
little  or  no  power,  under  hard-and-fast  price 
schedules  in  industry,  to  invoke  the  elasticity 
of  demand  to  increase  trade.  All  or  most  of  the 
potency  of  industry  to  bring  about  trade  revival, 
by  a  readjustment  of  production  to  lower  levels 
of  cost  to  the  consumer,  are  sacrificed  on  the 
altar  of  restriction  of  output.  Time  and 
changed  conditions  must  be  relied  upon  to  gen- 
erate from  the  demand  side  a  corrective  to  any 
wide  variation  from  the  normal  balance  between 
supply  and  demand.* 

3.     Stabilizing  Wholesale  Prices 

Prices  viewed  from  the  demand  side  of  the 
market  have  no  doubt  become  more  generally 
stabilized  under  the  trust  regime.  This  is  true 
even  in  international  as  contrasted  with  domestic 
trade.  The  valorization  of  Brazilian  coffee 
(1908-1914)  illustrates  the  way  in  which  world- 
wide scope  is  given  to  control  of  prices.  There 
a  big  crop  threatened  (1908-1909),  by  unprofit- 

*  How  these  underlying  changes  tend  to  render  unstable 
the  static  equilibrium,  is  described  by  C.  N.  Fay  in  his 
Big  Business  and  Government,  ch.  XVII. 


118 


Trusts  and  Competition 


ably  low  prices,  to  bankrupt  a  country's  main 
industry  if  not  to  provoke  political  revolution. 
To  avoid  these,  a  banking  syndicate  bought 
8,000,000  bags  of  coffee  in  one  season  to  hold 
for  sales  to  be  spread  equally  over  a  period  of 
several  years  following.  The  result  was  that, 
aided  by  smaller  crops,  for  most  of  this  selling 
period  prices  rose  from  eight  to  twelve  and 
fourteen  cents  a  pound. 

Among  manufactured  commodities  the  prob- 
lem is  also  world-wide.  In  commenting  on  the 
failure  of  quotations  to  drop  as  usual  in  dull 
trade  periods,  The  Ironmonger  of  Birmingham, 
England,  remarks  that  the  modern  system  of 
price-maintaining  combinations  has  hindered  a 
prompt  readjustment  of  prices  in  the  iron  and 
steel  products  made  from  billets,  blooms,  and 
bars  which  had  declined  25  per  cent.  The 
same  persistence  is  shown  in  the  American 
price  of  steel  rails  which  for  the  past  twelve 
years  have  sold  more  or  less  regularly  at  $28 
a  ton. 

More  of  the  stability  in  the  prices  of  raw 
materials  has  come  from  the  absorption  of  main 
bodies  of  natural  resources  into  fewer  hands, 
say  since  1900,  than  from  any  other  source. 
Rivalry  for  possession  of  ore  deposits,  for  con- 
solidation of  timber  areas  and  the  centralizing 
of  coal  deposits,  waterpower  sites,  etc.,  under 
great  syndicates  and  trust  subsidiaries  —  these 
are  matters  of  common  knowledge.  And  they 


Prices  Under  the  Trust  Regime        119 

fully  explain  the  persistent  advance  of  price- 
levels  on  the  production  side  of  the  markets. 

Raw  materials  and  manufactures  are  the  two 
great  classes  of  commodities  most  subject  to  the 
influence  of  combination  on  prices.  The  period 
over  which  this  sway  extended,  from  1893  to 
1913,  approximately  includes  the  main  era  of 
restrictions  on  competition. 

In  that  period  prices  of  these  two  classes  not 
only  recovered  to  the  high  level  of  1891,  but 
were  carried  far  beyond  to  the  apex  of  1912. 
Not  all  this  advance  was,  of  course,  due  to  the 
monopoly  factor  in  trust  organization  or  to  con- 
tracting the  scope  and  intensity  of  competition ; 
but  it  is  within  all  probability  true  that  no  such 
an  upward  swing  in  prices  of  raw  materials  and 
manufactures  as  that  shown  below  could  have 
occurred  without  corporate  combinations. 

Among  the  able  but  less  conclusive  discussions 
of  the  effects  of  combinations  on  prices  is  that 
by  Prof.  J.  W.  Jenks.*  By  means  of  data 
gathered  through  the  agency  of  the  United 
States  Industrial  Commission,  Vol.  I,  charts  of 
price  movements  are  constructed.  These  bring 
out  the  differences  at  succeeding  periods  between 
raw  material  prices  and  finished  product  prices, 
thereby  disclosing  the  contracting  or  expanding 
margin  of  profits,  costs  of  production,  etc.,  in 
sugar,  petroleum,  tin  plate,  whiskey,  and  iron 

*  The  Trust  Problem,  J.  W.  Jenks.  Doubleday,  Page 
&  Co.,  New  York. 


120  Trusts  and  Competition 

and  steel  products.  On  the  whole,  these  methods 
do  not  prove  the  emergence  of  excessive  net 
profits,  nor  phenomenal  gains  of  any  sort.  They 
tend  to  show  that  the  capacity  of  combinations 
to  render  prices  proof  against  competitive  or- 
ganizations has  been  greatly  overestimated. 

4-     Problems  in  Unfair  Merchandising 

Some  of  our  most  perplexing  questions  in 
trade  practices  and  their  relation  to  monopoly 
have  arisen  from  the  retail  or  merchandising 
side  of  business.  Outside  of  the  big  corpora- 
tions with  colossal  capital  resources  there  are 
numerous  businesses  in  which  the  individual,  as 
distinguished  from  the  corporation,  is  the  crea- 
tive force.  This  is  the  field  of  the  ordinary 
American  business  man.  In  the  solution  of  the 
trust  problem  he  is  not  to  be  forgotten.  Most 
amendments  to  the  Sherman  Act  are  proposed 
in  his  behalf.  And  any  adjustment  which  im- 
pairs the  capacity  of  the  ordinary  individual, 
be  he  merchant  or  manufacturer,  to  hold  a  serv- 
iceable place  in  the  commercial  system,  is  by 
that  test  vitally  insufficient. 

In  the  mercantile  field  the  department  stores, 
the  mail-order  houses,  and  the  chain  store  sys- 
tems have  carried  large-scale  organization  to 
the  very  door  of  the  consumer.  After  thirty 
or  more  years  the  small  retail  trade  does  not 
seem  to  be  the  worse  for  the  department  stores' 
success  in  the  cities.  The  chain  stores  are 


Prices  Under  the  Trust  Regime        121 

admitted  to  sell  only  about  10  per  cent  below 
the  individual  retailer's  prices  (Pittsburgh).  It 
is  the  retail  concentration  known  as  the  mail- 
order house  that  now  most  alarms  the  1,250,000 
retail  merchants  of  this  country,  especially  those 
of  the  smaller  towns  and  the  rural  districts. 
Here  the  problem  is  not  only  one  of  prices,  but 
also  of  practices.  In  the  competitive  relations 
of  the  system  with  the  individual  store  we  have 
the  soulless  corporation  contesting  the  field  with 
the  individual  merchant  citizen.  He  is  still  the 
main  distributive  agency  between  the  ordinary 
manufacturer  and  a  large  part  of  the  consum- 
ing population. 

"  If  these  large  companies  are  truly  economic 
and  able  to  deliver,  with  a  lighter  carrying 
charge,  the  goods  which  consumers  must  have, 
and  provided  they  deal  fairly,  the  greater  they 
are  the  greater  good  they  do ;  and  provided, 
also,  that  the  process  of  monopoly  does  not  go 
so  far  that  their  mere  size  makes  them  a  menace." 

Thus  one  of  the  newest,  yet  oldest,  forms  of 
the  trust  problem  in  the  mercantile  world  is 
stated  by  W.  H.  Ingersoll  of  the  American  Fair 
Trade  League.* 

The  ability  to  render  a  superior  merchandis- 
ing service  under  fair  competitive  conditions  and 
without  monopoly  advantage  —  that  is  the  cri- 
terion by  which  any  new  agency  in  large-scale 
enterprise  must  be  tried  in  business.  Our 

*  Unfair  Retail  Practices,  American  Fair  Trade  League. 


Trusts  and  Competition 


earlier  trusts  practiced  both  to  their  heart's 
content.  They  played  foul,  and  they  too  often 
made  the  rules  of  the  game  to  suit  themselves. 
Most  of  the  more  flagrant  kinds  of  unfairness 
have  meanwhile  been  given  up.  But  there  re- 
main two  or  three  varieties  which  are  widely 
condemned  as  unsound  in  economics  and  ethics, 
if  not  in  law  as  well.  These  are  (  1  )  unnatural 
price-cutting;  (2)  discriminatory  quantity 
prices;  (3)  fraudulent  advertising.  Each  of 
these  may  be  considered  from  three  standpoints. 
Is  it  good  business  for  producer,  for  merchant- 
distributor,  and  for  the  consumer  to  become 
party  to  a  price-cutting  program?  Taking 
the  community  asi  a  whole,  Mr.  Justice  Holmes' 
dissent  in  the  patent  medicine  decision  of  the 
United  States  Supreme  Court  would  probably 
find  wide  acceptance.  "I  cannot  believe,"  he 
insisted,  "that  in  the  long  run  the  public  will 
profit  by  this  course,  permitting  knaves  to  cut 
reasonable  prices  for  mere  ulterior  purposes  of 
their  own,  and  thus  impair,  if  not  destroy,  the 
production  and  the  sale  of  articles  which  it  is 
assumed  to  be  desirable  the  people  should  be 
able  to  get."  * 

5.  Quantity  Prices  and  Misrepresentation 

In  deciding  these  questions  the  public  is 
gradually  taking  the  broader  view  —  the  view  of 
enlightened  self-interest.  That  kind  of  compe- 

*  220  U.  S.,  373. 


Prices  Under  the  Trust  Regime       123 

tition  which  tries  to  create  business  by  unreason- 
able price-cutting  is  a  species  of  fraudulent 
self-exploitation. 

(1)  Brandeis'  reasoning  seems  to  be  sound 
on  this  score.     "To  sell    a    dollar    watch    (he 
argues)  for  sixty  cents  injures  both  the  manu- 
facturer and  the  regular  dealer,  because  it  tends 
to  make  the  public  believe  that  either  the  manu- 
facturer's or  the  dealer's  profits  are  exorbitant. 
Such  a  cut  necessarily  impairs  the  reputation  of 
the  article,  and  by  impairing  reputation  lessens 
the  demand."  *    It  takes  only  a  few  of  such  cut- 
sales  to  eliminate  the  regular  dealers.     Finding 
their  market  despoiled  by  quotations  which  mean 
loss  on  every  unit  sold  by  them,  they  cancel  their 
contracts  with  the  manufacturer  or  jobber.  Then 
the  industry  finds  its  demand  weakened.     The 
factory  that  was  the  life  of  the  community  shuts 
down  —  and  all  because  the  maker  of  a  standard 
commodity  is  denied  the  inherent  equity  of  see- 
ing that  his  product,  into  which  he  has  put  his 
best  service  to  society,  is  given  safe  conduct  in 
its  journey  from  factory  to  consumer. 

(2)  Discriminatory  quantity  prices   embody 
a   practice   quite    distinct   from   the    discounts, 
reductions,    or    other   concessions    made    to    all 
equally,  to  the  wholesaler  or  jobber  as  compared 
with  the  retailer.      Cost  of  carrying  the  stock 
includes  warehousing  charges,  interest  on  money, 
and  the  like.      Whoever  renders  this  service  is 

*  Harper's  Weekly,  November  15,  1913. 


Trusts  and  Competition 


entitled  to  the  proper  return,  whether  manu- 
facturer or  distributor.  But  beyond  that  lies 
what  is  called  an  inside  price,  lower  to  some  than 
to  others,  the  conditions  of  which  are  not  open 
but  secret,  or  within  the  reach  of  few  enough 
to  exclude  competition.  This  is  the  discrimina- 
tory element,  which  Prof.  Paul  H.  Neystrom 
of  the  University  of  Wisconsin,  calls  "the 
greatest  evil  in  modern  merchandising."*  His 
inquiries  lead  to  the  conclusion  that  the  mail- 
order houses  are  the  chief  exponents  of  this 
practice.  Probably  they  would  say  that  if  they 
do  not  get  that  part  of  the  output  of  a  given 
factory  at  the  price  they  offer  they  would  have 
to  build  a  factory  of  their  own  or  buy  out  a 
rival.  Such  kinds  of  coercion,  or  competition, 
require  no  threat  to  make  them  effective.  But 
against  this  method  of  enforcing  discriminatory 
trading  the  ordinary  retailer  is  but  a  fly  on  the 
wheel.  His  remedy  is  to  be  sought  in  some  form 
of  legalized  price  protection  recognizing  the 
equity  of  the  manufacturer  in  the  marketing 
methods  of  his  own  trade-marked  output. 

(3)  Fraudulent  advertising  is  a  case  in  which 
the  evils  are  curable  mainly  by  outside  pressure. 
Not  all  advertisers  are  liars,  but  too  few  of 
them  handle  the  truth  carefully  enough  to  indi- 
cate any  intent  to  avoid  misleading  the  public. 
Fairness  here  is  to  be  attained  by  three  means: 

*  On  Competitive  Unfairness  of  Quantity  Price,  Anti- 
Trust  Hearings,  House  Committee  on  the  Judiciary,  1912. 


Prices  Under  the  Trust  Regime       125 

Cooperation  by  honest  advertisers,  good  laws 
against  misrepresentation,  and  the  vigilance  of 
advertising  associations. 

6.     Price-Making  Forces  in  Big  Business 

How  far  can  combinations  dominate  the  prices 
of  materials  and  products  ?  The  Industrial  Com- 
mission's Report  on  Trusts  and  Industrial  Com- 
binations, Vol.  XIII,  1901,  probably  carried 
investigations  into  this  subject  as  far  as  is 
necessary  for  our  purpose.  Substantially  all 
witnesses  identified  with  trusts  agreed  "that 
unless  a  combination  has  either  some  natural 
monopoly  of  the  raw  material,  or  is  protected 
by  a  patent,  or  possibly  has  succeeded  in  devel- 
oping some  very  popular  style  or  trade-marks 
or  brands,  any  attempt  to  put  prices  at  above 
competitive  rates  will  result  eventually  in  fail- 
ure, although  it  may  be  temporarily  successful." 
Yet  it  was  admitted  that  competitive  forces 
worked  out  their  results  more  slowly  under  large- 
scale  production  or  combination  (page  21). 
Strong  faith  was  expressed  in  the  self -correcting 
capacity  of  the  industrial  system  for  most 
abuses,  unaided  by  legislation.  Edward  Atkin- 
son reasoned:  "Competition  cannot  be  sup- 
pressed by  combinations  or  other  devices. 
Through  competition  the  volume  of  product  is 
augmented,  and  the  cost  of  each  unit  is  dimin- 
ished, the  rates  of  wages  are  raised,  and  the 
margin  of  profit  is  lessened."  The  low  prices 


126  Trusts  and  Competition 

for  oil  and  sugar,  he  asserted,  were  only  pos- 
sible through  the  combination  of  the  ablest 
possible  men  working  on  a  very  big  scale  for 
the  lowest  margin  of  profits. 

Yet  it  must  be  remembered  that  the  essential 
goal  of  big-scale  production  is  not  minimum 
profit,  but  maximum  net  income  from  minimum 
cost  per  unit  of  production  on  a  progres- 
sive enlarging  scale  of  output.  The  trusts 
have  been  charged  with  systematically  selling 
at  lower  prices  abroad  than  in  the  domestic 
market.  In  most  cases  this  is  admitted,  but  the 
fact  is  due  to  several  causes.  In  1900  the  steel 
corporation  sold  abroad  at  $23  a  ton  grades  of 
steel  for  which  home  consumers  paid  $26  to  $28. 
The  reason  was  that  to  keep  the  mills  running 
and  the  men  employed  continuously  the  price 
had  to  be  made  low  enough  to  sell  the  output. 
Had  the  plants  run  only  part  time  or  less  than 
full  capacity  the  cost  to  home  consumers  would 
have  been  increased.  The  competition  was 
keener  in  the  foreign  market  as  a  rule,  and 
lower  prices  were  necessary  to  secure  orders 
enough  for  steady  operation. 

But  why  does  not  the  domestic  consumer  also 
get  the  benefit  of  lower  prices?  This  failure 
has  been  attributed  to  (1)  group  control  or 
community  of  investment  interests  among  indus- 
trial and  railway  trusts;  (2)  to  the  exclusion 
of  foreign  competition  by  protective  tariff.  To 
which  it  is  properly  replied  that  the  tariff, 


Prices  Under  the  Trust  Regime 


"  instead  of  helping  to  give  them  a  monopoly, 
it  is  the  one  thing  that  prevents  them  from 
having  a  monopoly,  because  it  sustains  their 
smaller  competitor  who  could  most  easily  be 
driven  out  by  free  foreign  competition."*  As 
for  domestic  prices,  the  larger  combinations  are 
the  price-making  force  in  the  home  market,  and 
the  smaller  concerns  adapt  themselves  to  their 
quotations.  The  combinations  pursue  a  let-live 
attitude  toward  the  smaller  industries,  as  the 
more  prudent  price  policy.  The  prices  at 
which  the  smaller  industries  can  live  are  extra- 
profitable  to  the  combinations.  An  import  duty 
so  low  as  to  eliminate  these  smaller  industries 
by  foreign  competition  would  simply  divide  the 
domestic  market  between  foreign  competitors 
and  domestic  combinations.  Given  fair  com- 
petitive relations  between  combinations  and  the 
smaller  concerns,  prices,  on  a  somewhat  higher 
than  the  competitive  level,  tend  to  that  degree 
of  normality  which  is  just  to  the  producer  and 
that  measure  of  elasticity  to  which  the  consumer 
is  entitled  by  progressive  conditions  of  produc- 
ing efficiency. 

Industrial  combinations  are  also  charged  with 
destroying  competition  by  lowering  prices  in 
certain  market  areas,  and  maintaining  them  at 
a  higher  level  elsewhere,  or  later  to  recoup  them- 
selves. Part  of  the  difference  in  prices  in  differ- 

*  United  States  Industrial  Commission  Eeport,  Vol. 
XIII,  p.  xxviii. 


128  Trusts  and  Competition 

ent  localities  equally  distant  from  the  source  of 
supply  may  be  due  to  higher  or  lower  freight 
rates.  This  species  of  unfairness  is  easily  cor- 
rected under  the  amendments  to  the  anti-trust 
act.  There  is  no  doubt  that  combinations  were 
formed  to  put  up  prices  and  that  the  vast  gains 
of  invention  to  costs  of  production  are  appro- 
priated by  them  as  fully  as  is  possible  without 
inviting  competition  or  restricting  consumption. 
In  other  words,  whatever  reduction  in  prices  to 
the  consumer  have  ensued  under  big  business  is 
the  result  (1)  of  competition  actual  or  poten- 
tial, and  (2)  of  the  policy  to  expand  consump- 
tion wherever  the  margin  of  profit  per  unit  of 
product  can  be  increased  by  reducing  the  cost 
of  production.  Under  the  system  the  combina- 
tion can  and  does  tend  to  appropriate  the  re- 
sidual gains  of  progress.  Hence  the  necessity 
of  keeping  competition  free  and  fair  as  the  sole 
condition  on  which  just  prices  can  ensue  to  the 
consumer,  under  the  regime  of  big  business. 


CHAPTER  IX 

SOME    PROBLEMS    OF    TRUST    MANAGEMENT 

"O  EFERENCE  has  been  made  earlier  to  the 
J-V  difficulty  of  finding  men  who  could  keep 
in  hand  these  vast  combinations  of  corporate 
properties  effectively  enough  to  produce  results 
in  competition  with  smaller  concerns.  It  was  the 
testimony  of  experience  that  the  capacity  for 
management  was  one  measure  of  how  large  a 
combination  might  safely  become.  In  combin- 
ing various  properties  it  has  often  been  the 
case  that  the  unfit  had  to  be  taken  in  with  the  fit, 
thus  handicapping  the  management  from  the 
very  start.  In  this  lies  the  reason  for  not  a  few 
of  the  failures  of  trusts  to  make  good,  either 
financially  or  otherwise. 

The  first  test  of  management  of  a  combina- 
tion is  shown  by  its  ability  or  inability  to  earn 
normal  returns  on  its  outstanding  obligations. 
Of  these  the  bonds,  usually  limited  to  half  the 
value  of  the  property  underlying  them,  have 
first  claim  in  the  form  of  interest.  Preferred 
stock,  secured  by  the  balance  of  the  tangible 
property,  has  the  next  claim  on  net  income ;  and 
the  less  tangible  or  intangible  assets,  such  as 
patents,  good  will,  and  expectation  of  economies 
of  combination  represent  the  residual  earning 
power  of  the  common  stock. 
129 


130 


Trusts  and  Competition 


1.     Management  a  Cooperative  Service 

It  is  probably  true  that  the  success  or  failure 
of  the  average  trust,  as  Fay  puts  it,  may  be 
judged  from  the  market  price  of  its  common 
stock.  If  so,  then  the  financial  organization 
of  possibly  the  majority  of  these  corporations 
is  so  heavily  water-logged  as  to  justify  no  fear 
to  conservatively  capitalized  concerns  under 
fair  competitive  conditions.  Over-capitaliza- 
tion is  a  handicap  on  successful  management. 
The  management  that  makes  good  is  as  a  rule 
favored  by  two  features  —  moderate  capitaliza- 
tion and  competitive  efficiency.  "  The  success- 
ful trusts,"  says  one  who  speaks  with  authority, 
"have  gained  their  power  and  wealth  in  not 
one  case  before  us  by  the  power  of  combination, 
but  by  the  power  of  destructive  competition; 
not  by  monopoly  but  by  efficiency." 

The  real  test  of  management  is  competitive 
service  —  financial,  industrial,  commercial  and 
social. 

On  the  service  side  of  this  question  a  higher 
order  of  economic  responsibility  is  no  doubt 
emerging.  Prof.  Lewis  H.  Haney's  apology 
is  pertinent  here.  "  The  critics  of  the  modern 
business  world  are  too  prone  to  underestimate 
the  real  social  service  performed  by  those  who 
direct  the  industrial  process,  the  business  men. 
In  the  main  these  men  are  no  mere  exploiters. 
Without  their  leadership  the  effectiveness  of 


Problems  of  Trust  Management       131 

industry  would  be  far  less  than  it  is.  In  a 
social  order  in  which  private  ownership  of  the 
instruments  of  production  exists,  we  have  sepa- 
rate groups  of  laborers  and  of  capitalists,  and 
some  one  must  undertake  to  bring  the  labor  and 
the  capital  of  these  groups  together,  so  that 
they  may  cooperate."  * 

2.     Interest  Service  of  Capital 

Every  wise  management  goes  slow  on  increas- 
ing fixed  charges  of  which  interest  is  the  main 
feature.  There  are  always  two  elements  in  any 
rate  of  interest.  One  is  the  payment  for  the 
use  of  capital;  the  other  is  compensation  for 
risk.  The  larger  charge  pays  for  service,  the 
other  for  hazards  assumed.  In  the  security 
issues  of  large  combinations,  bonds,  preferred 
stocks  and  common  stocks  represent  these  two 
elements  in  varying  proportions.  In  bonds, 
the  risk  element  is  at  the  minimum,  hence  the 
interest  rate  is  lowest.  Preferred  stocks  pay 
higher  rates  partly  because  they  bear  more  risk 
of  repayment  of  principal  than  bonds.  Com- 
mon stocks  assume  the  main  risk  of  income  after 
bonds  and  preferred  stocks  have  been  compen- 
sated for  services  and  for  insurance  against  loss 
of  principal. 

Maintaining  price  levels  under  combinations 
has  a  direct  bearing  on  the  interest  cost  of 

*  Business  Organization  and  Combination,  L.  H.  Haney. 
The  Macmillan  Company,  New  York,  p.  5. 


Trusts  and  Competition 


capital.  Higher  prices  cause  capital  to  flow 
in  that  direction  for  investment  or  for  working 
employment.  Whether  these  prices  be  main- 
tained by  a  protective  policy  securing  the  home 
market  or  by  control  of  market  through  con- 
solidations, the  result  is  much  the  same.  In 
the  competition  for  capital  the  flow  follows  the 
path  of  higher  interest  rates,  in  which  the  risk 
is  not  too  prominent.  In  combinations,  as  Hob- 
son  rightly  holds,  "part  of  the  rising  interest 
and  profits  are  due  to  the  establishment  over 
large  markets  of  prices  above  the  level  which 
free  competition  would  have  maintained.  The 
era  of  large  gold  output,  of  expanding  credit 
and  of  new  large  productive  areas  of  investment, 
has  also  been  the  era  of  trusts,  cartels,  confer- 
ences, and  combines  of  every  size  and  strength, 
all  directed  primarily  to  secure  a  higher  rate  of 
interest  and  profit  than  competition  would 
secure  for  the  group  of  business  engaging  in 
the  operation."  *  Thus  trust  capital  is  usually 
high-cost  capital. 

Interest  payments  on  capital  invested  in  large 
corporations  is  one  of  the  monthly  features  of 
the  money  market.  Payments  from  every  part 
of  the  globe  are  made  at  the  large  financial  cen- 
ters through  fiscal  agents  in  each  one  of  the 
industrial  nations.  Here  loan  funds  tend  to 
accumulate  and  find  an  investment  or  a  specula- 
tive market.  The  commercial  uses  of  surplus 

*  Gold,  Prices,  and  Wages. 


Problems  of  Trust  Management       133 

capital  also  influences  the  industrial  interest 
rates.  Both  uses  compete  constantly,  and  the 
discount  rates  in  foreign  exchange  often  deter- 
mines whether  or  not  corporate  financing  shall 
be  undertaken  or  postponed. 

Three  main  fields  of  investment  in  trust  secu- 
rities are  open  to  the  public.  Not  including 
railways,  the  two  main  classes  are  industrials 
and  public  utility  issues.  Of  these  the  interest 
rates  are  lowest  for  railway  securities,  highest 
in  industrials,  and  midway  on  public  utilities. 
The  more  nearly  any  of  these  approach  legal- 
ized monopoly  in  the  control  of  its  field  the 
more  attractive  does  it  become  as  an  investment 
for  safe  income  purposes.  The  competitive 
industry  is  the  more  hazardous  and  commands 
the  higher  rate  of  interest. 

Owing  to  the  higher  rate  of  interest  and  mar- 
gin of  safety  borne  by  public  utility  bonds  they 
have  tended  to  displace  other  securities.  This 
class  of  investment  is  found  over  a  period  of 
years  to  have  had  average  annual  earnings  on 
the  aggregate  capitalization  of  public  utilities 
of  8.45  per  cent,  while  railroads  showed  average 
annual  earnings  of  4.25  per  cent,  and  industrials 
7.79  per  cent. 

Over  a  similar  period  it  is  shown  that  while 
an  average  of  1.84  per  cent  a  year  of  capital 
invested  in  railroads  was  in  the  hands  of  re- 
ceivers, and  2.07  per  cent  of  industrial  capital, 
there  was  an  average  annual  receivership  risk 


134 


Trusts  and  Competition 


in  public  utility  companies  of  only  37/100  of 
1  per  cent  of  the  capital  invested.  The  stabil- 
ity of  earnings  of  public  utility  corporations 
is  shown  by  the  fact  that  for  the  five  years  fol- 
lowing 1907,  the  net  earnings  of  gas  and  electric 
companies  increased  60  per  cent,  and  of  electric 
railways  20  per  cent ;  while  for  the  same  period 
the  net  earnings  of  steam  railways  increased 
only  5  per  cent.  Freedom  from  competition 
because  of  the  general  recognition  of  the  prin- 
ciple of  "regulated  monopoly  in  public  utility 
service"  by  state  commissions  is  also  adduced 
as  a  material  point  in  their  favor. 

3.     Profits  of  Industrial  Trusts 

"  The  very  thing  for  which  capitalism  exists," 
declares  John  Graham  Brooks,  "is  profits  on 
sales."  Profits  depend  on  the  success  of  selling 
as  well  as  on  the  efficiency  of  manufacturing. 
They  are  the  margin  between  selling  price  and 
production  costs.  The  trust  system  of  produc- 
tion and  marketing  is  noteworthy  for  its  elim- 
ination of  intermediate  profits.  All  those  tolls 
of  profit  which  come  from  buying  materials, 
raw  or  semi-finished,  from  other  producers,  are 
eliminated  in  the  fully  integrated  trust  organiza- 
tion. Its  essential  idea  is  to  become  self-suffi- 
cient in  this  respect,  so  as  to  reap  the  full  benefit 
in  reduced  costs,  both  of  manufacturing  and  of 
selling  as  well  as  in  owning  sources  of  necessary 
materials. 


Problems  of  Trust  Management       135 

Larger  profits  were  the  goal  of  most  of  these 
consolidations  through  three  sources  —  reduced 
costs,  less  competition,  and  selling  economies. 
"The  best  thing  to  do  was  to  get  rid  of  the 
fierce  competition,"  testified  an  official  of  a  con- 
stituent member  in  the  International  Harvester 
Company,  "to  get  rid  of  the  waste  of  money 
in  canvassers.  We  have  not  half  as  many  can- 
vassers today  as  we  did  have." 

The  report  of  the  United  States  Bureau  of 
Corporations  shows  that  the  profits  of  the 
McCormick  Company  for  the  year  preceding 
the  merger  were  12  per  cent  of  the  net  book 
assets,  those  of  the  Deering  Company  were  18 
per  cent,  and  those  of  the  Milwaukee  Company, 
11  per  cent. 

After  the  consolidation  of  the  five  companies, 
when  competition  was  materially  reduced  and 
prices  far  more  easily  maintained,  the  Harvester 
Company  showed  the  following  yearly  results 
in  the  eight  years  ending  with  1911: 

Per  cent  of 
Tears  Net  earnings    profit  on  assets 

1904 $    5,682,445  5.34 

1905 7,511,284  7.01 

1906 7,406,946  6.74 

1907 8,227,716  7.31 

1908 10,179,726  8.73 

1909 16,458,843  13.43 

1910 17,208,597  12.77 

1911 16,838,703  11.51 

The  average  rate  of  earnings  for  the  latest 
three  years  was  12.5  per  cent.  These  rates 


136  Trusts  and  Competition 

are  figured  on  assets  with  no  capital  allowance 
for  good  will.  In  none  of  these  years  does  the 
rate  equal  the  average  of  the  three  companies 
for  the  year  prior  to  the  merger.  "On  the 
basis  of  the  company's  own  statements,  the  rate 
of  return  on  investment  in  the  monopolistic  lines 
is  at  least  from  two  to  three  times  as  great  as 
on  some  lines  on  which  it  meets  active  competi- 
tion." * 

In  the  meat  packing  industries  profits  have 
been  popularly  regarded  as  of  monopoly  pro- 
portions. But  President  Swift,  in  his  annual 
report  of  1911,  asserted  that  competition  was 
never  keener.  With  the  rising  price  of  live 
stock  and  the  curtailment  of  demand,  meat  pro- 
duction was  actually  conducted  at  no  net  return 
whatever.  The  only  profits  came  from  by- 
products. Disclaiming  inordinate  net  earnings, 
his  report  showed  15.2  per  cent  net  in  1908 
on  $50,000,000  invested,  compared  with  8.2 
per  cent  on  $75,000,000  in  1911.  Packing 
profits,  it  was  claimed,  on  share  capital  and 
surplus  assets,  uniformly  ranged  under  10  per 
cent.  Business  with  an  average  output  of 
$250,000,000,  showed  an  average  profit  of  3 
per  cent  on  the  value  of  products  sold.  This 
was  equal  to  $1.40  on  each  head  of  cattle  slaugh- 
tered, 1/4  of  a  cent  a  pound  on  dressed  beef 
sold,  and  1/8  of  a  cent  on  the  live  weight  of 
the  whole  steer.  Between  the  cost  of  materials 

*  Tlie  U.  S.  Bureau  of  Corporations'  Report,  p.  243. 


Problems  of  Trust  Management        137 

and  the  wholesale  price  of  the  product  the  pack- 
ing industry  adds  only  12  per  cent  of  value. 

Large  industries  have  no  way  of  wholly 
escaping  those  elements  of  cost  which  are  sub- 
ject to  the  law  of  diminishing  returns,  nor  the 
law  of  a  progressive  standard  of  living.  Nor 
are  they  any  less  liable  to  the  rising  cost  for 
investment  capital.  Yet  all  three  of  these  have 
a  direct  bearing  on  the  tendency  to  limit  profits. 
Probably  this  is  best  shown  by  the  operations  of 
the  United  States  Steel  Corporation.  For  a 
period  from  1902  to  1913,  inclusive,  manufac- 
turing costs  and  volume  of  output  are  con- 
trasted with  the  cause  of  net  manufacturing 
profits.  The  diagram  on  page  138  is  from  the 
New  York  Annalist,  February  2,  1914. 

4>     Industrial  Efficiency   of  Combinations 

How  do  the  trusts  stand  on  the  score  of  eco- 
nomic efficiency?  Certainly  that  was  one  of  the 
arguments  given  for  creating  them  —  especially 
the  industrial  trusts.  But,  after  all,  have  they, 
as  a  class,  proved  themselves  to  be  the  exponents 
of  progress  rather  than  of  reaction?  Were 
not  the  usual  reasons  for  their  coming  into  being 
found  in  two  objects,  one  a  negative  purpose  of 
finding  some  way  to  end  bankrupting  rivalry, 
and  the  other  the  insider's  vision  of  vast  profits 
arising  from  the  security-distributing  capacity 
of  the  stock  market  to  the  public?  In  other 
words,  was  not  much  of  the  trust-building  based 


II  S  ^  SS  S3 


Hslu 


Problems  of  Trust  Management        139 

on  two  unsound  buttresses:  (1)  the  fault  of 
government  in  granting  monopoly  powers  to 
them,  followed  by  failure  in  simple  police  duty 
to  prevent  unfair  practices;  (2)  the  economic 
fallacy  that  centralization  resulting  in  a  large 
measure  of  price  control,  in  elimination  of  inter- 
mediate profits  and  in  reducing  common  elements 
of  expense,  is  certain  t;o  widen  the  margin  be- 
tween costs  and  prices? 

Although  no  statute  or  decision  forbids  large- 
ness, there  is  an  economic  limit  to  combination 
in  the  nature  of  the  industry  itself.  It  has 
been  pointed  out  that  low-priced  products  of  big 
bulk  have  a  much  more  limited  market  than 
those  having  high  value  in  small  bulk.  A 
foundry  casting  combination  of  country-wide 
extent,  would  find  it  difficult  to  compete  with 
local  concerns  because  of  the  extra  cost  of  a 
selling  force,  overhead  charges,  and  small  selling 
territory,  conditions  which  a  low-priced  product 
could  not  stand.  On  the  other  hand,  a  combina- 
tion of  machine  industries  might  vastly  gain  in 
efficiency  in  which  the  best  of  devices  and  inven- 
tions in  each  subsidiary  could  be  availed  of,  in 
which  one  shop  organization  could  be  brought 
to  compete  with  others,  and  in  which  standard- 
ization of  working  conditions,  safety  measures, 
and  social  insurance  could  be  applied  to  equal 
advantage. 

In  the  anti-trust  hearings  of  1914,  W.  L. 
Saunders  concluded  on  this  aspect :  "  Generally 


140  Trusts  and  Competition 

speaking,  big  business  is  vulnerable  to  the 
attacks  of  a  small  competitor.  Where  its  prod- 
uct can  be  made  on  the  duplicate  part  system 
or  by  machinery,  it  must  reach  out  for  large 
markets  and  be  satisfied  with  a  small  percent- 
age on  its  turn-over  or  it  will  fail.  In  order 
to  get  this  large  turn-over  made,  so  necessary 
to  its  business,  this  big  concern  reached  out  for 
foreign  markets.  Here  is  where  we  have  one 
of  the  strongest  arguments  for  bigness  in  busi- 
ness." This  applies  especially  to  staple  as  dis- 
tinguished from  specialty  manufacturing,  in 
the  latter  of  which  the  independent  industry, 
with  ample  capital  and  good  selling  agencies, 
usually  takes  care  of  itself. 

Time  is  the  surest  test  of  the  worth  of  these 
combinations  to  the  nation's  economic  life.  The 
attitude  of  doubt  as  to  their  efficiency  has  be- 
come more  general  with  the  rise  of  the  sciences 
of  cost-accounting  and  of  efficiency  engineering. 
William  C.  Redfield,  Secretary  of  Commerce, 
probably  voiced  the  growing  conviction  of 
many,  in  his  report  of  1913,  when  he  asserted: 

"It  is  doubtful  whether  there  does  not  come 
a  point  of  maximum  efficiency  at  minimum  cost, 
beyond  which  an  increase  of  product  means  an 
increase  of  cost  per  unit  of  that  product.  It  is 
significant  that  some  of  the  great  trusts  have 
ceased  to  exist;  that  others  pay  but  moderate 
dividends,  if  any,  on  their  securities,  and  that 
side  by  side  with  the  most  mighty  and  supposedly 


Problems  of  Trust  Management        141 

the  most  efficient  of  them  have  grown  up  inde- 
pendent organizations  quite  as  successful  and 
perhaps  earning  even  more  on  their  capital  than 
their  powerful  competitors." 

The  rather  frequent  changes  in  the  headship 
of  some  of  the  largest  trusts  within  the  first 
ten  years  of  their  experience  affords  ample 
proof  of  the  limitations  under  which  big  busi- 
ness has  been  conducted.  Probably  the  testimony 
of  Charles  R.  Flint  of  New  York,  whose  direct 
contact  with  the  forming  of  combinations  entitles 
him  to  speak,  may  best  be  cited  at  this  point : 

"In  my  judgment,  one  of  the  dangers  to  the 
success  of  industrials  is  that  parties,  without 
being  intellectual  giants,  are  liable  to  attempt 
to  centralize  too  much.  Taking  men  as  they 
are,  I  think  that  in  businesses  where  high-class 
ability  is  required  at  many  places,  and  where 
the  business  is  not  of  such  a  character  that  its 
conduct  can  be  reduced  to  rules  and  where  its 
success  depends  on  local  ability  and  local  judg- 
ment, and  where  the  efficiency  of  the  selling 
department  is  involved  with  long-time  personal 
relations,  such  a  business  may  be  very  dangerous 
to  suddenly  centralize.  It  is  far  wiser,  I  think, 
in  a  case  of  that  kind,  to  sustain  the  independ- 
ence and  individuality  of  the  separate  concerns. 
In  that  way  you  have  the  advantage  of  the 
organizations  that  have  created  those  concerns 
and  by  an  adjustment  of  compensation  based 
somewhat  upon  the  earnings  of  those  individual 


142  Trusts  and  Competition 

concerns,  you  sustain  the  individual  interest  that 
is  essential  to  success.  At  the  same  time  your 
central  organization  has  the  advantages  of  com- 
parative accounting  and  comparative  adminis- 
tration, and  is  able  to  hold  the  separate  concerns 
to  a  strict  accountability,  or,  by  appealing  to 
their  pride,  to  promote  a  healthy  spirit  of 
rivalry."  * 

5.    Labor  Relations  With  Large  Industries 

The  industrial  combinations  come  to  their 
social  estate  through  their  relations  with  labor. 
Labor,  under  the  trust  regime,  furnishes  one  of 
the  most  complicated  phases  of  the  subject. 
The  main  criticism  of  organized  labor  against 
such  companies  as  the  United  States  Steel  Cor- 
poration, which  in  1913  employed  an  average 
of  229,000  persons  and  paid  $207,206,000  in 
wages,  is  due  to  the  company's  open-shop  policy. 
In  none  of  the  steel  corporation's  800  plants 
is  labor  unionized  or  recognized  as  such.  In 
this  case  the  annual  average  wage  in  the  past 
ten  years  increased  from  $720  a  year  per  man 
to  $905,  or  25  per  cent.  In  the  same  period 
the  average  gross  receipts  per  ton  of  product 
decreased  over  $7.50  for  steel  sold.  The  finished 
steel  product  per  man  in  the  manufacturing 
properties  advanced  from  sixty  to  seventy-five 
tons,  or  25  per  cent,  showing  that  the  rate  of 

*  The  United  States  Industrial  Commission,  Vol. 
XIII,  84. 


Problems  of  Trust  Management        143 

increase  in  average  wages  was  equal  to  the  rate 
of  increase  in  manufactured  product.  Appar- 
ently, wage  advances  absorbed  a  large  part  of 
the  increase  in  output.  Presumably  this  incre- 
ment in  wages  was  reflected  partly  at  least  in 
improvement  in  productive  processes  by  increase 
in  labor  efficiency. 

One  of  the  main  motives  in  the  combination 
of  industries,  for  which  there  is  ample  testi- 
mony of  official  records,  was  the  necessity  of 
some  more  comprehensive  form  of  organization 
to  deal  with  the  country-wide  activities  of 
organized  labor.  The  progress  of  collective 
bargaining  between  1890  and  1900  made  it  clear 
to  many  employers  that  the  labor  unions  were 
in  much  better  position  to  enforce  their  demands 
than  the  isolated  employer  was  to  meet  or  resist 
them.  The  trust  movement  simply  restored  a 
balance  by  enabling  the  combined  organization 
to  stand  on  an  equality  in  negotiating  con- 
tracts with  the  collective  sellers  of  labor.  For 
this  outcome  unionism  is  as  much  responsible 
as  industrial  combination. 

Among  the  leaders  in  the  formation  of  the 
trust  organization  there  was  no  lack  of  sympa- 
pathy  with  labor  as  a  class.  Many  of  the 
employers  had  themselves  developed  from  the 
ranks  of  the  employee.  And  while  the  ex- 
employee  when  he  becomes  an  employer  some- 
times turns  out  to  be  a  tyrant  and  a  brute  in 
his  attitude  towards  subordinates,  it  is  more 


144 


Trusts  and  Competition 


often  the  case  than  not  that  the  one  who  has 
risen  carries  with  him  a  fellow-feeling  which 
is  of  no  mean  service  as  a  factor  in  bargaining 
on  a  wage  scale. 

But  from  outside  of  the  ranks  in  financial 
circles  the  hope  and  belief  were  widely  accepted 
that  the  trust  movement  had  large  emancipating 
possibilities  in  it  for  labor.  The  arrest  of  price- 
demoralizing  competition  was  expected  to  pre- 
vent not  only  depression  in  prices  but  to  put 
an  end  to  unemployment.  Much  was  hoped 
for  through  the  development  of  foreign  markets 
to  keep  the  mills  going  at  capacity  or  all  the 
year  round.  Greater  stability  of  prices  was 
also  one  of  the  most  fortunate  developments  to 
which  labor  could  look  forward  under  the  self- 
control  to  which  industry  was  gradually  coming. 
But  entirely  apart  from  these  considerations, 
such  leaders  in  the  financial  world  as  the  late 
J.  Pierpont  Morgan  made  one  of  the  first  things 
to  be  considered  in  the  organization  and  devel- 
opment of  these  combinations,  "  some  plan  of 
bringing  about  better  conditions  of  labor,  some 
plan  of  cooperation  and  participation  in  the 
benefits  and  profits  of  the  company,  which  was 
considered  the  only  way  practically  of  helping 
to  solve  the  relations  of  capital  and  labor."  * 

To  the  question  whether  the  trusts  have  made 
good  in  their  relation  with  their  employees,  the 

*  Testimony  of  Kobert  Bacon,  Dissolution  Suit,  U.  S. 
Steel  Corp.,  June  13,  1913. 


Problems  of  Trust  Management       145 

representatives  of  organized  labor  are  inclined 
to  give  the  negative  reply.  John  Williams,  of 
the  iron,  steel,  and  tin  workers,  Pittsburgh, 
asserts  that  the  smaller  establishment,  which  the 
trust  regime  has  absorbed  or  superseded,  had 
many  advantages  which  made  for  the  better  posi- 
tion of  labor  as  a  whole.  He  says: 

"Before  the  organization  of  modern  indus- 
trial combinations,  the  hours  of  labor  were 
shorter,  which  in  turn  gave  the  workers  some 
time  for  mind  culture,  some  time  to  devote  to 
the  home  and  some  time  for  social  enjoyment. 
The  physical  requirements  were  not  so  great. 
Today,  in  the  iron  and  steel  industries,  outside 
of  those  plants  engaged  in  the  manufacture  of 
sheet  and  tin  plates,  the  twelve-hour  work-day 
is  almost  universal.  This  m'eans  practically 
fourteen  hours  per  day,  which  gives  the  worker 
practically  ten  hours  to  devote  to  his  family  and 
public  duties,  with  practically  no  time  for  recrea- 
tion. The  workingman  loses  his  individuality 
as  soon  as  he  enters  one  of  our  modern  industrial 
plants.  He  becomes  but  an  atom  in  the  great 
aggregate  of  this  industrial  system,  and  his  only 
hope  of  regaining  his  social  and  economic  indi- 
viduality is  by  uniting  with  his  fellow  workmen 
in  a  movement  through  which  he  will  be  able  to 
secure  a  joint  bargain  with  his  employer  for  the 
labor  he  has  to  sell."  * 

*  Annals  of  the  American  Academy  of  Political  and 
Social  Science,  Effects  of  Industrial  Combinations  on 
Labor  Conditions,  Vol.  XLII,  p.  9. 


146  Trusts  and  Competition 

Probably  the  account  on  this  score  may  best 
be  put  in  the  form  of  the  following  comparative 
summary  of  claims,  pro  and  con,  as  to  effects 
of  combinations  on  labor: 

Combinations  claim  they 

1.  Increase  kinds  of  employment; 

2.  Improve  labor  conditions; 

3.  Promote  steadier  work ; 

4.  Enlarge  chances  of  promotion ; 

5.  Make  investing  easier  and  safer; 

6.  Enhance  value  to  community. 

Labor  claims  combinations 

1.  Favor  unskilled  labor 

2.  Level  down  wages ; 

3.  Restrict  personal  liberty; 

4.  Intensify  competition ; 

5.  Exalt  machine  over  man ; 

6.  Do  not  develop  citizenship. 


CHAPTER  X 

STATUS  OF  TRUSTS  IN  OTHER  LANDS 

DIFFERENT  countries  entertained  entirely 
different  views  on  such  fundamental  ques- 
tions as  the  relation  of  business  to  government. 
Germany,  for  instance,  favors  trusts,  not  only 
by  admitting  combinations  to  complete  legality, 
but  even  by  promoting  them  and  cooperating 
with  them.  England,  on  the  other  hand,  under 
the  civil  or  common  law,  allows  them  wide  lati- 
tude with  a  minimum  of  regulation.  In  Canada 
and  in  the  United  States  combinations  are  pro- 
hibited under  both  civil  and  criminal  statutes. 
In  Australia  their  validity  is  the  more  directly 
dependent  upon  the  question  whether  a  combina- 
tion is  primarily  contributory  to  the  public 
welfare.  An  examination  of  each  country's 
position  separately  is  necessary,  however,  to 
grasp  the  essential  purport  of  their  individual 
policies. 

1.     Cartels  and  Syndicates  in  Germany 

Germany,  where  formerly  extreme  liberality 
in  industrial  policies  prevailed,  later  came  to 
be  among  the  strictest  in  restraining  industrial 
combinations.  This  status  prevailed  up  to  about 
the  middle  of  the  last  century.  At  the  present 
time,  however,  the  widest  freedom  of  contract 
147 


148  Trusts  and  Competition 

in  private  business  activity  goes  side  by  side 
with  strict  laws  relating  to  unfair  competition 
and  forbidden  practices  in  the  distributive 
branches  of  trade.  To  understand  Germany's 
position  one  must  keep  in  mind  the  historic  ten- 
dency toward  unification  which  ended  in  the 
formation  of  the  Empire  and  the  enlargement 
of  the  Zollverein.  Her  economists  who  stand 
highest  in  the  imperial  councils  have  always 
been  exponents  of  the  idea  that  the  most  eco- 
nomical unit  of  production  is  the  nation  with 
the  least  interference  with  freedom  of  move- 
ment of  labor,  capital,  and  commerce  among  its 
component  states.  Germany,  furthermore,  has 
recognized  in  the  commercial,  industrial,  and 
engineering  organizations  effective  instruments 
of  self-control  and  correction  in  business  prac- 
tices to  a  much  greater  extent  than  is  the  case 
among  English  speaking  peoples. 

Probably  the  main  reason  why  syndicates  of 
industrial  capitalists  have  found  favor  in  Ger- 
many is  because  of  their  undisputed  service  in 
the  equipment  of  home  industry  for  participa- 
tion in  foreign  commerce.  Germany's  national 
prosperity  depends  much  on  the  capacity  to  keep 
her  export  and  import  trade  on  sound  economic 
and  technical  grounds.  Hence  the  trusts  in 
that  country  are  conducted  with  much  more 
regard  to  export  efficiency  than  to  domestic 
markets.  A  second  reason  is  found  in  the  serv- 
ice of  the  syndicates  in  protecting  smaller  enter- 


Status  of  Trusts  in  Other  Lands      149 

prises  from  being  exterminated  through  extreme 
competition.  This  enables  small  industries  to 
obtain  raw  materials  or  semi-manufactured  prod- 
ucts at  something  like  a  common  scale  of  prices. 
As  a  result  German  manufacturing  has  developed 
a  large  number  of  smaller  machine  industries 
and  handicraft  occupations,  which  comprise  a 
middle-class  bulwark  between  large-scale  manu- 
facturing and  agriculture. 

Syndicates  there  are  regarded  finally  as  serv- 
ing a  useful  economic  purpose  as  a  means  of 
balancing  the  relations  of  production  to  dis- 
tribution and  therefore  preventing  any  abnormal 
disproportion  between  demand  and  supply.  Al- 
though there  is  criticism  of  excessive  prices, 
practically  all  political  parties  recognize  the 
legality  and  economic  necessity  of  these  syndi- 
cates or  cartels.  This  is  also  true  of  various 
other  interests,  including  finance,  agriculture, 
mining,  and  labor. 

Government's  relation  to  some  of  the  German 
cartels  is  that  of  positive  and  direct  encourage- 
ment. The  potash  industry  under  the  law  of 
May  25,  1910,  established  a  legal  monopoly  with 
government  participation  and  regulation  of 
prices.  Desirous  of  preventing  too  rapid  ex- 
ploitation of  a  natural  monopoly  in  potash  in 
the  German  states,  and  having  regard  to  the 
necessity  of  the  commodity  for  intensive  agri- 
culture, the  government's  dominant  share  in  pro- 
motion is  self-evident  as  a  matter  of  public 


150  Trusts  and  Competition 

policy.  On  different  ground  but  for  the  same 
general  end,  Russia  promotes  the  beet  sugar 
industry,  as  also  does  Italy.  Recent  steps  to 
establish  a  petroleum  monopoly  by  the  state* 
are  due  partly  to  the  government's  desire  to 
promote  the  good  of  German  investments  in 
that  industry  in  the  Balkan  states  and  to  oppose 
the  control  which  the  Standard  Oil  Company  has 
acquired  in  that  country. 

2.  Attitudes  in  England  and  Her  Colonies 

As  to  England's  attitude,  Dr.  Francis  Walker, 
an  accepted  authority  on  the  question,  says: 
"  The  policy  of  the  law,  therefore,  is  to  encour- 
age competition;  but  it  does  not  prohibit  com- 
bination. Furthermore,  while  agreements  in 
unreasonable  restraint  of  trade  are  invalid,  the 
English  courts  give  a  wide  scope  to  the  freedom 
of  contract,  and  they  have  never  interfered  with 
a  consolidation  of  competing  industrial  enter- 
prises into  a  single  company,  on  this  ground."  f 

British  practice  gives  business  the  benefit  of 
the  doubt.  Pools  for  the  limitation  of  competi- 
tion and  maintenance  of  price  lists  among  iron 
and  steel  makers  are  accepted  as  natural  growths. 
Shipping  rings,  which  by  "  conference  "  agree- 
ments completely  control  the  rates  of  freight  on 
over-sea  trade,  and  combinations  which  have  a 

*  American  Economic  Eevieiv,  June  19,  1914. 
t  Annals  of  the  American  Academy  of  Political  and 
Social  Science,  July,  1912. 


Status  of  Trusts  in  Other  Lands      151 

large  measure  of  control  or  monopoly  in  the 
supply  of  food  stuffs,  such  as  the  meat  trades  — 
these  have  never  seemed  serious  enough  to  the 
authorities  to  interfere  with,  or  to  attempt  to 
restrict  their  operation. 

In  two  of  Great  Britain's  leading  colonies, 
Australia  and  Canada,  quite  the  opposite  policy 
has  found  favor.  The  Canadian  Acts  of  1889 
and  1904,  as  well  as  of  1906  and  1907,  and  also 
the  Combines  Investigation  Act  of  1910,  form  a 
series  of  repressive  statutes  intended  to  prevent 
"combinations  from  injurious  exploitations  of 
the  public."  Here  the  consumer  receives  the 
benefit  of  the  doubt.  Canadian  policy  coincides 
quite  closely  with  that  of  the  United  States. 
One  feature  of  the  Australian  law  bearing  on 
combinations  has  proved  to  be  of  special  value 
in  determining  whether  a  combination  is  within 
or  without  the  limits  of  legality.  It  makes  guilt 
depend  upon  the  question  whether  or  not  the 
public  good  is  served  by  the  agreements  and  acts 
of  the  consolidation.  The  Australian  authorities 
are  specially  vigilant  in  their  supervision  of  for- 
eign combinations. 

To  summarize,  the  policy  towards  trusts  in 
continental  Europe  is  generally  one  of  govern- 
ment toleration  or  even  cooperation.  This  is 
largely  due,  no  doubt,  to  dependence  upon  export 
trade  for  markets.  In  England  the  maximum 
of  freedom  is  allowed  in  inter-corporate  relations 
and  dealings.  In  America,  both  in  Canada  and 


152  Trusts  and  Competition 

in  the  United  States,  there  is  increasing  strict- 
ness in  the  enforcement  of  law,  in  both  civil  and 
criminal  prosecutions,  against  restraints  of  trade 
and  attempts  at  monopoly. 

3.    Austria-Hungary's  Steel  Trust 

On  the  continents  of  Europe  combinations  in 
primary  production  seem  to  be  so  entrenched  as 
to  put  the  many  dependent  manufacturers  of 
specialities  at  a  more  than  ordinary  disadvantage. 
The  Austro-Hungarian  Steel  Trust  affords  one 
of  the  most  effective  cases  of  market  control.  Its 
benefits  to  investors  are  proved  by  its  dividends 
of  thirty-five  to  forty  per  cent.  So  complete 
is  the  mastery  of  the  market  within  the  kingdom 
that  many  of  the  smaller  plants  have  been  closed. 
The  policy  of  restricting  -the  output  to  a  little 
above  the  domestic  demand  is  unhindered,  reports 
the  U.  S.  Consul  at  Fiume  (June,  1913),  and 
the  combination  seldom  raises  the  vexing  ques- 
tion of  selling  at  lower  prices  abroad  than  at 
home.  An  import  duty  on  pig  iron  of  $2.72 
a  ton  and  of  $34  on  certain  steel  products  guar- 
antees a  home  market  among  iron  and  steel  users. 

This  large  class  late  in  1913  organized  a  pro- 
tective association  to  resist  the  monopoly  posi- 
tion of  the  steel  trust.  By  means  of  three 
bureaus,  a  legal,  a  statistical,  and  a  purchasing 
bureau,  the  counter-combination  of  employers' 
associations  hopes  to  pool  its  contracts  for  iron 
and  steel  materials  by  entering  into  exclusive 


Status  of  Trusts  in  Other  Lands      153 

agreement  with  a  foreign  company  to  furnish 
supplies  for  a  term  of  five  years  on  the  basis  of 
ruling  German  or  English  prices. 

This  steel  trust's  control  is  vested  in  bankers 
bent  on  maximum  profits.  Manufacturers  pay 
higher  prices  than  their  competitors  in  Germany 
and  England  for  iron  and  steel  products  con- 
sumed, even  though  Austria-Hungary  produces 
such  products  at  a  lower  cost  than  Germany. 
This  handicaps  the  exporting  manufacturers  of 
such  products  as  cutlery,  hardware,  and  building 
materials  in  their  effort  to  develop  trade  abroad. 
Banking  control  of  steel  production  is  regarded 
as  a  drawback.  No  more  frequent  complaint  is 
heard  in  continental  experience  than  this  —  that 
the  various  cartels  and  trusts  exploit  by  monop- 
oly prices  that  large  body  of  manufacturers  of 
specialties,  which  counts  for  so  much  in  local 
economic  prosperity.  Not  even  the  German  com- 
binations are  exempt  from  the  persistent  claim 
that  these  argus-eyed  syndicates  see  to  it  that 
the  consumer  of  semi-manufactures  makes  no 
more  than  a  moderate  profit. 

4.    Prohibition  or  Regulation 

How  far  foreign  experience  has  brought  out 
results  that  can  help  toward  solving  our  own 
problems  is  not  yet  certain.  With  the  Europeans 
the  trust  problem  has  been  more  closely  tied  up 
with  the  necessities  of  promoting  export  business 
than  with  us.  The  connecting  link  between  British 


154  Trusts  and  Competition 

policy  and  our  own  is  found  in  the  common  law. 
From  that  point  of  departure  the  anti-trust 
policy  has  been  developed  in  the  United  States 
to  a  position  almost  the  exact  opposite  of  the 
British  attitude.  We  have  no  half-way  pro- 
gram—  it  is  either  prohibition  or  regulation  of 
monopoly.  Many  students  of  the  subject  will 
agree  with  Dr.  E.  Dana  Durand  "that  it  is 
necessary  either  to  prohibit  and  destroy  the 
trusts  and  pools,  or  to  regulate  their  prices  and 
profits."  * 

Those  who  take  the  former  horn  of  the 
dilemma  stand  with  the  Federal  policy  of  enforc- 
ing to  its  full  intent  the  provisions  and  amend- 
ments of  the  Sherman  Act.  Those  who  take  the 
other  course  regard  the  government's  policy  as 
mischievous  and  futile.  The  first  word  in  their 
creed,  as  Henry  L.  Higginson  affirms,  is,  "  I 
believe  the  Sherman  law  is  bad."  To  them  the 
British  policy  of  widest  liberty  within  common 
law  limits,  or  the  German  plan  of  governmental 
sanction  is  far  more  to  be  desired. 

Reasoning  from  analogy,  foreign  experience 
has  failed  to  take  account  of  difference  in  na- 
tional policies.  What  meets  European  needs  may 
not  be  at  all  in  harmony  with  our  own  economic 
institutions  and  our  ideas  of  freedom.  President 
Taft  met  this  preference  for  foreign  methods 
by  saying: 

*  Quarterly  Journal  of  Economics,  May  and  August, 
1914. 


Status  of  Trusts  in  Other  Lands      155 

"There  is  a  tendency  among  some  foreign 
governments  to  encourage  what  they  call  trusts, 
to  take  part  themselves  in  the  management  of 
the  trusts,  to  fix  prices  and  to  depend  upon  gov- 
ernmental control  to  secure  their  reasonable 
conduct;  but  such  a  system  with  us  is  absolutely 
impossible,  and  it  might  as  well  be  understood. 
The  countries  to  which  reference  is  made  are 
veering  toward  state  socialism.  This,  indeed,  if 
competition  is  to  disappear,  is  the  logical  escape 
from  the  evil  of  private  monopolies,  because  if 
private  companies  are  to  be  allowed  to  manage 
everything  and  fix  prices,  then  there  is  every 
reason  why  the  control  thus  exercised  by  them 
should  be  transferred  from  them  to  the  govern- 
ment, and  this  is  state  socialism."  * 

5.  Cooperation  in  Foreign  Trade 

In  the  effort  to  promote  foreign  trade  a  situa- 
tion has  arisen  in  which  the  anti-trust  laws 
appear  to  stand  in  the  way  of  the  desired 
development  of  our  external  commerce.  Foreign 
countries,  as  a  rule,  whose  international  trade 
is  large,  favor  combination  among  exporters  to 
meet  competitive  conditions.  But  the  prohibi- 
tions of  the  Sherman  law  and  its  amendments, 
extending  to  foreign  as  well  as  to  interstate 
trade,  put  our  own  exporters  and  importers  at 
serious  disadvantage,  it  is  claimed. 

At  this  date  the  law  has  not  as  yet  been  con- 

*  Speech  at  Waterloo,  Iowa,  September  28,  1911. 


156  Trusts  and  Competition 

strued  as  to  exports.  In  the  Harvester  Com- 
pany decision,  the  lower  court,  after  dissolv- 
ing the  combination,  approved  petition  for 
modification  of  decree,  excepting  the  company's 
foreign  business  from  disintegration.  But  this 
was  only  for  the  time  being  and  largely  on 
account  of  the  pending  European  wars,  making 
it  impossible  to  adjust  business  under  prevailing 
conditions.  In  the  importing  branch  of  for- 
eign trade  the  so-called  Coffee  Trust  suit  can  not 
be  taken  as  at  all  conclusive. 

The  Potash  Selling  Association  of  Germany 
is  often  cited  as  an  instance  of  governmental 
cooperation  with  private  interests  to  promote 
foreign  commerce.  In  that  case  the  imperial 
authorities  went  so  far  as  to  cancel  contracts 
between  German  mine-owners  and  American  fer- 
tilizer makers  for  a  long-term  supply  of  this 
commodity,  and  then  put  in  its  place  a  contract 
much  less  favorable  to  the  American  party.  This 
conduct  of  an  official  character  is  cited  to  show 
to  what  lengths  some  governments  go  to  support 
combination  against  the  world  market  in  inter- 
national bargaining. 

It  is  claimed  that  the  small  manufacturer  is 
the  main  interest  sacrificed  by  these  anti-trust 
restrictions  in  foreign  trade.  "No  small  manu- 
facturer can  develop  a  market  abroad  for  any 
product  he  makes,  unless  it  is  a  patented  article 
on  which  foreigners  cannot  compete,  for  he  has 
not  the  capital  or  the  organization  to  seek  the 


Status  of  Trusts  in  Other  Lands      157 

markets  and  fight  for  them  single-handed,"  is  a 
fair  statement  of  this  view.*  But  it  overlooks 
the  fact  that  many  exporters  of  shoes,  and  simi- 
lar kinds  of  goods  have  made  world-wide  suc- 
cesses of  their  business  through  recognized 
export  agencies,  or  even  independently. 

The  argument  is  by  no  means  all  on  the  side 
of  the  big  business  in  exporting,  even  though 
the  large  combinations  have  without  doubt  done 
more  than  any  other  means  to  build  up  foreign 
trade.  No  other  country  in  the  world  has  more 
efficient  exporting  than  is  to  be  found  in  our 
own  United  States  Steel  Products  Company,  the 
International  Harvester,  or  the  Standard  Oil. 
On  the  other  hand,  among  individual  companies 
the  Singer  Sewing  Machine  Co.  stands  out  as 
a  most  successful  exporter.  But  it  has  vast 
capital  resources. 

There  can  certainly  not  be  one  interpretation 
of  the  anti-trust  acts  for  domestic  and  another 
for  foreign  trade.  But  it  is  entirely  reasonable 
to  recognize  certain  kinds  and  degrees  of  coop- 
eration in  the  promotion  of  foreign  commerce 
as  making  neither  for  restraint  of  trade  or  tend- 
ing to  monopoly.  In  this  middle  domain  it  is 
believed  by  some  that  there  are  vast  possibilities 
for  judicial  and  administrative  adjustment  with- 
out amending  the  law  itself. 

*  National  Foreign  Trade  Convention,  1914,  p.  168. 


CHAPTER  XI 

COMBINATIONS  AND  THE   COMMUNITY 

AS  industrial  combinations  are  now  organ- 
ized, the  application  of  labor  and  capital 
to  the  utilization  of  natural  resources  results  in 
turning  out  a  vast  supply  of  commodities  for 
the  market.  This  supply  passes  through  the 
market  to  the  consumer,  and  the  prices  which 
he  pays  are  the  measure  of  the  gross  value  to 
be  distributed  among  all  who  have  participated 
in  the  productive  process.  To  this  so-called 
income  fund  made  up  of  all  that  the  consuming 
world  pays  for  commodity  needs  in  the  course 
of  a  year,  there  are  several  claimants.  The 
validity  of  their  claims  rests  on  their  propor- 
tionate share  of  necessary  participation  in 
advancing  the  goods  from  their  natural  state  to 
the  point  at  which  property  right  passes  over 
into  the  consumer's  hands  by  the  payment  of  a 
price  for  consumption  goods. 

1.    Pioneering  Risks  in  Modern  Enterprise 

Now,  there  are  four  main  contributors  to  this 
cumulative  value  of  the  products  of  industry. 
They  are  the  owners  of  natural  resources,  the 
contributors  of  labor,  the  lenders  of  capital.  A 
fourth  participant  is  the  organizer  of  these  three 
158 


Combinations  and  the  Community      159 

other  elements  of  production  into  a  systematic 
process.  Under  the  progressive  economic  order 
of  today  the  role  of  this  participant  is  the  one 
whose  status  is  most  in  dispute.  Yet  it  is  he  more 
than  any  one  else  who  is  ever  pushing  out  the 
frontiers  of  industry  and  trade.  He  is  both 
entrepreneur  and  pioneer.  Hence  it  has  seemed 
to  many  that  the  responsible  adventurer  might 
rightly  be  entitled  to  pioneering  profits.  In- 
deed, the  economics  of  pioneering  risks  in  mod- 
ern business  lends  strong  support  to  the  view 
that,  without  this  industrial  and  commercial 
leadership  in  the  command  and  the  management 
of  capital,  material  progress  would  be  much 
slower.  Are  not  he  and  his  capitalist  associates, 
regarded  as  a  group  of  pioneer  risk-takers,  really 
entitled  to  the  net  returns  of  the  national  income, 
after  the  other  claims,  including  taxes,  are 
fairly  and  fully  met? 

There  is  much  to  be  said  in  the  affirmative. 
Modern  capital  is  always  seeking  through  the 
laboratory  the  means  for  creating  new  sources  of 
economic  goods.  In  a  progressive  society,  based 
on  freedom  and  private  property,  the  great  game 
of  the  pursuit  of  business  for  profit  needs  the 
pioneering  type  of  talent.  The  speculative  risk- 
bearers  are  the  participants  who  put  millions  of 
surplus  capital  at  the  disposal  of  specialists. 
They  project  into  the  future  by  means  of  long- 
term  contracts  vast  plans  of  production.  They 
organize  raw  materials,  labor  power  and  other- 


160  Trusts  and  Competition 

wise  idle  capital,  under  a  system  of  continuous 
and  profitable  enterprise.  They  are  the  ones 
who  in  a  large  measure  personify  modernity  with 
its  highly  organized  armies  of  peaceful  industry, 
advancing  by  the  all-conquering  guidance  of  sci- 
ence, and  all  marshalled  under  a  risk-assuming 
service  responsive  to  the  spirit  of  democracy. 

2.    Bargaining  Power  of  Big  Business 

There  are  two  widely  different  views  on  the 
question  whether  combination  makes  for  a  more 
equitable  outcome  to  labor  and  to  the  consumer. 
Something  akin  to  Marxian  hopelessness  is  evi- 
dent in  A.  J.  Hobson's  analysis.  He  holds  that 
"the  era  of  competition  in  the  business  world 
is  giving  place  more  and  more  to  an  era  of  com- 
bination. While  capital  and  labor  are  both 
combining,  the  combination  of  capital  is  advanc- 
ing faster  and  is  more  effective.  Though  pri- 
marily designed  more  for  the  control  of  output 
and  of  selling  prices  than  for  bargaining  with 
labor,  it  has  been  inevitable  that  trusts,  and 
other  combines  or  federations  of  businesses, 
should  pay  increasing  attention  to  the  art  of 
buying  labor  economically.  This  new  organiza- 
tion of  capital  thus  tends  to  militate  against  the 
rise  of  wages  in  two  ways:  by  restraining  com- 
petition in  the  markets  so  as  to  raise  the  price 
of  commodities  which  wages  buy,  and  by  restrain- 
ing money  wages  from  rising  so  as  to  compensate 
the  workers  adequately  for  the  rise  of  prices. 


Combinations  and  the  Community      161 

Though  there  is  here  no  closely  thought-out  and 
conscious  policy,  the  operation  of  organized 
modern  capitalism  is  towards  a  modified  'iron 
law  of  wages,5  keeping  real  remuneration  of 
labor  down  to  a  level  of  minimum  efficiency  de- 
manded for  the  sorts  of  skilled  or  unskilled  labor 
which  the  several  industries  require."  * 

In  line  with  this  is  the  view  of  John  A.  Fitch 
of  The  Survey,  New  York,  claiming  that  the 
attitude  of  the  Steel  Trust  against  resort  to  col- 
lective bargaining  of  any  kind,  in  dealing  with 
its  260,000  employees,  tends  to  outweigh  any 
advantage  gained  by  pensions,  profit-sharing, 
or  bettered  labor  conditions. 

It  is  part  of  the  faith  in  the  existing  economic 
order  to  hold  that,  in  spite  of  criticism,  the  nat- 
ural development  of  society  is  steadily  toward 
equality  in  essentials.  "  There  are  inherent  and 
unseen  forces  that  work  everlastingly  to  this 
end,"  is  the  way  George  E.  Roberts  sees  it.  The 
leaders  and  inside  organizers  may  seem  to  appor- 
tion to  themselves  more  than  is  really  due,  and 
less  than  is  equitable  to  their  employees  in  wages. 
Yet,  "the  remainder  goes  into  the  investment 
fund  and  creates  a  new  demand  for  wages  and 
a  new  supply  of  products,  thus  strengthening  the 
employee's  position  both  as  a  wage-earner  and 
as  a  consumer."  f 

*  Gold,  Prices,  and  Wages,  pp.  127-129. 
t  The  Investment  Fund,  pp.  24-25.     Farm  Mortgage 
Bankers'  Assn.,  Chicago,  Oct.  10,  1914. 


162  Trusts  and  Competition 

But  over  against  this  must  be  set  the  labor 
view  of  the  national  dividend.  "  They  affirm," 
as  Dr.  Peter  Roberts  expresses  it,  "  that  the  men 
at  the  head  of  industrial  combinations  take  the 
fat  of  the  fry,  while  a  bare  subsistence  is  given 
to  the  vast  majority  of  laborers."  It  is  difficult 
to  dislodge  this  conviction,  so  long  as  combina- 
tions fail  to  realize  that  the  test  of  their  service 
is  in  promotion  of  sound  conditions  of  public 
welfare. 

3.    Adjustment  to  Public  Welfare 

What  is  still  by  all  means  the  largest  of  the 
trust's  problems  is  its  harmonious  adjustment  to 
the  social,  political,  and  moral  convictions  of 
the  community.  Here  is  a  new  instrument  of 
great  power  in  the  business  world  with  direct 
relations  to  the  state  and  nation  and  to  the  homes 
and  associations  of  the  people.  A  form  of  pri- 
vate enterprise  has  become  a  mighty  institution. 
To  what  extent  does  its  management  undertake 
to  prevent  discordant  relations  and  to  promote 
harmonious  attitudes  with  its  environment? 
Speaking  at  the  Chicago  Conference  on  Trusts, 
Prof.  Henry  C.  Adams  concluded  his  address  by 
saying: 

"  This  is  indeed  a  great  question.  It  moves 
in  many  directions  and  embraces  many  consid- 
erations. It  is  at  bottom  a  question  of  social 
theories  and  social  ideas.  Its  vastness  will  be 
appreciated  when  it  is  observed  that  its  judicious 


Combinations  and  the  Community      163 

treatment  will  result  in  securing  for  the  people 
the  advantages  of  the  industrial  development  of 
the  past  century,  while  to  ignore  it  or  to  fail  in 
its  solution  would  result  in  prostituting  the 
wealth  created  by  an  hundred  years  of  phe- 
nomenal development  to  the  service  of  a  class."  * 
That  trust  management  at  the  start  failed  to 
grasp  this  opportunity  will  generally  be  admit- 
ted by  most  students  of  the  subject.  On  the 
other  hand,  while  it  failed  to  adjust  itself  suf- 
ficiently to  legal  and  moral  standards  in  its 
political  and  social  environment,  the  more  public 
spirited  have  to  their  credit  a  splendid  record  of 
welfare  work — instances  shown  in  the  United 
States  Steel  Corporation,  The  International 
Harvester  Company,  the  National  Cash  Register  » 
Company,  and  many  others.  In  dealings  with 
their  own  people  these  combinations  set  higher 
sanitary  standards  than  their  predecessors,  or  | 
their  independent  competitors.  They  have 
grasped  the  business  wisdom  of  better  conditions 
of  living,  better  social  opportunities  and  privi- 
leges, and  larger  leisure  as  a  means  of  enhancing 
industrial  efficiency.  But,  in  their  external  rela- 
tions, officers,  directors,  and  stockholders  have 
yet  to  appreciate  their  responsibilities  as  citizens 
in  adjusting  these  splendid  agencies  of  wealth 
production  and  distribution  so  as  to  accord  with 
the  political  order  and  economic  freedom  under 
which  they  have  attained  their  position  of  power. 

*  Report  of  National  Civic  Federation,  1899. 


164  Trusts  and  Competition 


4>  Public  Commissions  as  Business  Umpires 

If  it  be  true  that  combinations  and  natural  law 
follow  the  same  main  line  of  progressive  better- 
ment for  the  wage-earner,  how  does  it  work  out 
for  the  investor  and  the  consumer? 

When  the  wage  relation  breaks  down,  strikes 
ensue  and  the  community  is  penalized  if  not  ter- 
rorized by  boycotts  primary  and  secondary. 
Public  investigations  are  invoked,  and  the  polit- 
ical powers  effect  a  surrender  or  compromise. 
That  looks  like  a  piece  of  bad  bargaining  on  the 
part  of  capitalism.  But  is  it  not  simply  an 
acquiescence  to  the  principle  that  in  a  case  of 
doubt  public  powers  wisely  cast  their  deciding 
vote  on  the  side  of  the  less  favored  party  in  con- 
troversy? This  very  tendency  of  public  opin- 
ion, acting  through  government,  to  function  as 
umpire  where  organization  meets  counter-organi- 
zation is  a  new  thing  in  the  bargaining  process, 
and  it  generally  works  out  to  the  cost  of  the 
consumer  and  the  investor. 

There  is  no  better  instance  of  this  than  the 
Anthracite  Coal  Strike  award  of  1904,  as  a  case 
of  charging  up  against  the  investor  and  the 
consumer  the  enhanced  costs  resulting  from  the 
arbitration.  Probably  the  only  way  of  escape 
from  this  loss  of  control  of  the  bargaining  ma- 
chinery is  for  the  trust  to  anticipate  the  demands 
of  labor  for  betterment  in  conditions  and  wages. 


Combinations  and  the  Community      165 

The  best  managed  combinations  have  the  least 
possible  controversy  with  their  employes. 

How  near  this  equilibrium  comes  to  being  a 
combination  of  employer  and  employe  against 
the  consumer  is  a  fair  question.  If  the  facts  war- 
rant that  conclusion,  the  consuming  public  is 
apt  to  demand  publicity  of  profits  as  a  means  of 
self-protection  —  a  case  in  which  the  bargaining 
advantage  of  business  management  tends  to  be- 
come trusteed  in  some  form  of  administrative 
commission.  About  the  time  of  the  Chicago 
Convention  on  Trusts  (1899)  publicity  was  the 
first  commandment  of  the  anti-trust  decalogue. 
Now  it  is  seldom  mentioned  as  a  remedy,  and 
nowhere  as  a  cure-all.  The  knowledge  that  was 
supposed  to  be  wanted  by  the  investor  and  con- 
sumer has  not  proved  to  be  corrective,  except  as 
it  found  expression  in  the  self-interest  of  invest- 
ors or  in  the  regulative  control  of  a  governmental 
commission  with  powers  to  insure  fair  competi- 
tion among  private  corporations  and  to  make 
rates  for  public  utility. 

Of  these  two  lines  of  remedial  policy  in  the 
regulation  of  the  American  trusts,  the  older  is 
the  publicity  of  corporate  accounts.  The  other, 
the  later,  and  now  the  vogue,  is  supervision  by 
commission.  Publicity  of  accounting  has  much 
more  to  be  said  for  it  than  has  yet  been  given 
to  its  credit.  It  has  worked  fairly  well  in  the 
control  of  insurance  companies  both  in  Great 
Britain  and  America.  It  is  far  less  complex  as 


166  Trusts  and  Competition 

a  regulative  program,  and  its  extension  of  super- 
visory authority  stops  short  of  impairing  private 
responsibility  for  corporate  results.  It  involves 
no  radical  departure  in  policy ;  and,  if  properly 
applied,  it  may  afford  adequate  protection  to 
the  public.  "  The  publicity,  required,"  declares 
an  eminent  insurance  specialist,  "  is  of  the  simple, 
straightforward,  intelligent  type,  covering  es- 
sential matters,  so  that  the  public  may  judge."  * 
In  both  of  these  lines  of  development  the  bar- 
gaining power  has  already  passed  in  its  final 
form  to  the  political  powers.  This  extension  of 
public  powers  is  differently  interpreted.  To 
some  it  means  incapacity  in  self-governing  in- 
dustry. But  the  more  scientific  view  is  the 
truer  —  that  it  is  only  a  division  of  labor  in  which 
government,  whose  business  it  is  to  decide  con- 
troversies, extends  its  services  over  into  the  field 
of  free  enterprise.  This  is  not  because  its  deci- 
sions are  more  nearly  ideally  just;  but,  as  the 
cricket  umpire  explained  to  the  novice,  that  some 
sort  of  a  decision  may  be  rendered  promptly,  "  so 
that  the  game  may  go  on."  This  is  why  gov- 
ernment by  commission  has  come  to  play  so  large 
a  role  in  the  complex  conditions  of  modern  trade 
and  industry.  Where  one  sort  of  umpiring 
proves  unequal  to  its  task  it  is  set  aside  for 
another.  Commissions  will  be  needed  until  the 

*  Miles  M.  Dawson,  address,  published  in  the  Annals 
of  the  American  Academy  of  Political  and  Social  Science, 
March  29,  1912. 


Combinations  and  the  Community      167 

administrative  arm  of  government,  as  contrasted 
with  the  other  three  divisions,  comes  to  stand  on 
an  equality  with  them.  Then  we  may  have  the 
four  corner  stones  of  a  complete  system  of  gov- 
ernmental control  in  the  executive,  the  judiciary, 
the  legislative,  and  the  administrative. 

5.    The  Old  Game  Under  New  Rules 

The  solution  of  the  American  trust  problem 
cannot  be  found  in  governmental  repression 
within  abnormally  restricted  limits  of  economic 
freedom.  It  lies  rather  (1)  in  the  discovery  of 
the  maximum  legal  limits  within  which  free  en- 
terprise may  safely  be  assured  to  the  employment 
of  capital  and  labor  in  the  service  of  the  market ; 
(2)  in  the  observance  of  reasonable  "  rules  of  the 
game"  as  defined  in  jurally  sound  codes  of  com- 
petitive relationships.  On  these  bases  economic 
law  will  settle  all  questions  of  forms  and  size  of 
the  business  corporation. 

This  solution  lays  down  two  general  princi- 
ples, free  enterprise  and  fair  competition.  With 
the  former  there  must  be  no  legalized  monopoly 
apart  from  public  control.  With  the  latter  we 
keep  the  via  media  of  economic  experience.  To- 
gether they  comprise  the  best  in  American  and 
European  commercial  experience,  and  are  in  line 
with  sound  economic  development.  As  in  poli- 
tics, so  too  in  economics  —  the  remedy  for  the 
abuses  of  freedom  is  more  freedom,  not  always 
of  the  same  kind  but  always  of  a  more  responsi- 


168  Trusts  and  Competition 

ble  kind.  Here  is  the  union  of  what  George  W. 
Alger  calls  The  Old  Law  and  the  New  Order* 

To  summarize,  the  requirements  of  a  trust 
solution  must  at  least  — 

(1)  Insure  the  maintenance  of  a  superior  type 
of  economic  responsibility  in  trust  management ; 

(£)  Sufficiently  safeguard  the  interests  of  the 
community  —  the  creator  of  corporations  and 
the  consumer  of  its  products ; 

(3)  Define  the  limits  within  which  trade  and 
industry  in  the  exercise  of  their  legal  privileges 
and  economic  practices  shall  have  regard  to  the 
principles  of  public  welfare ; 

(4)  Recognize  within  the  scope  of  their  rela- 
tions the  necessity   of  the   state   as  umpire  to 
define   and   enforce  the   standards   of   fair  and 
unfair  competition. 

Recent  amendments  to  the  Sherman  Act  em- 
body this  code  of  fair  dealing  among  rivals  big 
and  little,  with  a  view  to  strengthening  competi- 
tive conditions  and  abolishing  the  monopolistic 
abuses  in  enterprises  devoted  wholly  to  private 
profit. 

The  principle  is  recognized  here  that  preven- 
tion of  the  abuses  of  competition  is  necessary  to 
forestall  the  tendency  toward  monopoly.  As 
destructive  competition  killed  off  rivals,  leaving 
the  field  to  competitors  with  the  best  staying 
powers,  so  interposition  of  positive  checks  be- 

*phe  Old  Law  and  the  New  Order,  G.  W.  Alger. 
Houghton  Mifflin  Company,  Cambridge.  Ch.  VIII. 


Combinations  and  the  Community      169 

comes  the  duty  of  a  new  administrative  body. 
Such  an  agency  is  the  logical  outcome  of  a  policy 
to  restore  sound  competitive  conditions  to  the 
field  of  commerce.  To  make  effective  this  method 
o,f  keeping  competitive  business  within  legal  lim- 
its the  Federal  Trade  Commission  is  authorized 
(1)  to  investigate  interstate  corporations,  except- 
ing banks  and  common  carriers;  (2)  to  make 
recommendations  for  the  readjustment  of  the 
business  of  any  corporation  alleged  to  be  vio- 
lating the  anti-trust  acts ;  ( 3 )  to  act  thus  as  a 
master  in  chancery  for  the  purpose  of  ascertain- 
ing and  reporting  an  appropriate  form  of  decree 
in  equity  ^suits  for  relief ;  finally,  ( 4 )  the  Com- 
mission is  authorized  to  extend  its  investigation 
into  trade  conditions  in  and  with  foreign  coun- 
tries where  trade  practices  may  affect  the  foreign 
trade  of  the  United  States. 

Thus  the  Federal  Government  in  its  adminis- 
trative capacity  enters  upon  the  policy  of  the 
guardianship  of  the  conditions  of  competition 
which  make  for  freedom  and  fairness.  By  doing 
this  it  not  only  cuts  out  the  worst  curse  of  na- 
tional commerce  but  it  also  sets  up  a  tribunal 
before  which  business  may  seek  to  learn  the  salu- 
tary paths  of  constructive  competition. 

6.    New  Wine  in  New  Bottles 

Nor  is  the  trust  solution  mainly  a  matter  of 
schoolmaster's  rules  to  insure  good  behavior. 
It  is  rather  a  question  of  the  spirit  of  right 


170  Trusts  and  Competition 

management  and  just  relations.  A  new  wine  is 
tingling  in  the  veins  of  modern  humanity,  and 
it  cannot  but  mean  new  bottles  —  new  mentali- 
ties and  new  attitudes,  as  well  as  a  new  order 
under  old  legal  forms.  Neither  combination  nor 
competition  need  be  regarded  as  an  exhausted 
asset  of  industrial  society.  If  by  combination 
we  secure  the  highest  economy,  efficiency,  and 
freedom  in  specific  fields  of  public  service,  then 
let  us  promote  it  within  recognized  standards  of 
fairness  in  costs  and  services.  On  the  other  hand, 
so  long  as  competition  tends,  in  the  opinion  of 
society,  not  only  to  utilize  the  aggregate  prod- 
uct of  the  community  to  advantage,  but  also 
tends,  on  the  whole,  to  make  the  price  of  differ- 
ent articles  proportionate  to  the  expenses  of 
producing  them  (Hadley),  then  let  us  proceed 
to  emancipate  that  principle  of  private  enter- 
prise as  part  of  the  program  of  national  policy. 
Competition  to  serve  its  purpose  and  natural 
functions  must  be  normalized.  Each  age  must 
decide  what  these  limits  are.  Faith  in  its  com- 
plement—  combination  —  has  often  been  mis- 
placed because  of  the  general  misconception  of 
what  true  competition  is.  So  much  of  what  has 
passed  as  such  lies  outside  of  the  truly  economic, 
ethical,  or  legal  criteria  of  the  genuine.  Hence, 
it  has  come  to  be  regarded  as  immoral  and  de- 
structive in  its  purposes,  and  its  essential  char- 
acteristic of  service  has  been  obscured.  But, 
says  Associate  Justice  Oliver  Wendell  Holmes : 


Combinations  and  the  Community      171 

"  True  competition  looks  to  the  invention  and 
introduction  of  more  and  more  comprehensive 
ideas.  It  results  in  the  upbuilding  of  emulation 
and  cooperation  and  always,  taking  one  period 
with  another,  to  the  furtherance  of  the  general 
interest.  The  ordinary  notion  of  competition 
takes  account  of  numbers  only.  I  regard  the 
customary  thinking  here  as  a  sort  of  atheism. 
Competition,  rightly  understood,  is  rivalry  in  the 
service  of  one's  fellows.  Men  can  not  compete 
save  with  reference  to  a  common  end." ' 

As  things  stand  now  "  Big  Business  "  need  not 
necessarily  go.  But  it  is  on  trial.  If  it  is  to 
stay,  on  what  condition  may  it  persist?  On  con- 
dition that  corporate  organization  develop  a 
type  of  service  in  commercial,  financial,  and  in- 
dustrial as  well  as  in  public  utility  fields,  capable 
of  appreciating  and  respecting  the  right  of  the 
public,  both  as  consumer  and  investor,  to  have 
commodities  and  services  supplied  at  reasonable 
prices  and  rates.  The  older  right  of  exploita- 
tion must  defer  to  the  newer  duty  of  service  on 
fair  terms.  More  and  more  it  is  coming  to  be 
recognized  that  the  progress  of  society  in  wealth 
and  welfare  is  due  not  alone  nor  even  chiefly  to 
any  few  men  nor  any  class  of  interests.  It  is  the 
joint  resultant  of  the  cooperation  of  all  economic 
groups  of  the  community  working  through  divi- 
sion of  labor  applied  in  special  fields. 

For  this  type  of  economic  service  some  cor- 

*  Private  Letter  to  Franklin  Ford,  New  York. 


172  Trusts  and  Competition 

porations  may  have  to  be  disintegrated.  But, 
given  economic  freedom,  the  main  thing  is  to 
arrive  at  a  resultant  in  which  each  working  group 
will  recognize  some  approach  to  justice  in  its 
share  in  the  national  income.  Whatever  in  pub- 
lic policy  and  private  effort  makes  for  that  end 
will  work  toward  a  right  solution.  But  the  solu- 
tion is  not  wholly  a  question  of  the  distribution 
of  the  national  dividend.  It  is  at  the  same  time 
a  question  also  of  the  kind  of  public  attitude 
which  such  division  of  wealth  engenders.  For 
that  reason  modern  peoples  have  no  more  funda- 
mental problem  before  them  than  that  of  balanc- 
ing their  material  prosperity  with  the  prevailing 
demands  of  social  justice.  In  the  realm  of  prac- 
tical government  there  are  few  tasks  more  per- 
sistent, especially  among  peoples  whose  national 
spirit  is  of  the  progressive  type.  It  is  that  type 
which  profits  by  comparing  its  conditions  of 
well-being  at  any  one  time  with  what  they  were 
in  the  past,  and  with  what  these  conditions  are  in 
other  communities  and  nations  today.  The 
spirit  of  comparative  research  has  made  the  pre- 
vailing sense  of  justice  a  progressive  concept  of 
the  popular  consciousness.  This  attitude  finds 
expression  in  discussion,  in  investigation,  in  leg- 
islation, and  in  administration.  And,  because  of 
this,  the  problem  of  adjusting  outward  pros- 
perity with  inward  contentment  becomes  the 
really  great  work  of  modern  statesmanship. 
Finally,  this  is  the  problem  which  the  trusts 


Combinations  and  the  Community      173 

have  brought  to  contemporary  Democracy.  In 
working  it  out  we  are  still  in  the  stage  of  inves- 
tigating their  merits  and  shortcomings.  The 
disintegration  of  the  most  dominant  ones  prob- 
ably has  contributed  more  to  the  discovery  of  a 
practicable  method  of  dealing  with  the  problem 
of  monopoly  than  to  any  other  result.  These 
dissolutions  were  carried  out  under  writ  of  in- 
junction, providing  for  prompt  correction  of 
what  had  been  adjudged  as  a  wrong,  under  peril 
of  receivership  control.  But  they  have  also  been 
the  occasion  of  bridging  the  gulf  between  pro- 
gressive competition  and  reactionary  monopoly. 
Guided  by  the  principles  of  equity,  the  courts 
have  found  in  the  morals  of  business  practice 
the  means  of  opening  the  highway  of  corporate 
progress.  Any  ultimate  solution  of  the  trust 
question  must  recognize  this  result  as  the  open 
gate  to  the  future  of  industry  and  trade  in 
America.  It  means  that  our  courts  have  found 
a  method  of  insuring  the  potentiality  of  compe- 
tition in  private  enterprise  without  destroying 
the  corporation  disposed  to  be  amenable  to  the 
settled  convictions  of  business  morality.  And 
they  do  this  by  taking  away  the  potentiality  of 
the  trusts  to  interfere  unduly  with  the  freedom 
of  economic  opportunity. 

But  the  elimination  of  monopoly  from  the 
private  combination  is  only  half  of  the  problem. 
The  conservation  of  competition  within  fair 
limits  is  equally  vital.  For  that  end,  among 


174  Trusts  and  Competition 

others,  the  Federal  Trade  Commission  was 
created,  but  not  without  hedging  the  injunctive 
powers  of  the  courts  about  with  certain 
limitations  which  may  or  may  not  impair 
the  effectiveness  of  control  of  unfair  practices. 
Thus  eliminating  what  is  unfair  in  corporate 
competition  and  what  is  intolerable  in  private 
monopoly,  or  unreasonable  in  trade  restraints, 
we  enter  upon  a  new  era  in  the  possibilities  of 
business. 


REFERENCES 

CHAPTER  I 

ATKINSON,  EDWARD.    Facts  and  Figures:    The  Basis  of 

Economic  Science. 

MOODY,  JOHN.     The  Truth  About  the  Trusts. 
EDDY,  ARTHUR  J.     The  New  Competition. 
Conference  on  Trusts,  Chicago,  Sept.  13-16,  1899. 
HICKS,  FREDK.  C.     Competitive  and  Monopoly  Price. 
HOBSON,  J.  A.     Gold,  Prices,  and  Wages. 
VAN  HISE,  CHARLES  E.     Concentration  and  Control:   A 

Solution  of  the  Trust  Problem  in  the  United  States. 
Annals  of  the  American  Academy  of  Political  and  Social 

Science. 
COLLIER,  W.  M.     The  Trusts:  What  Can  We  Do  with 

Them?     What  Can  They  Do  for  Us? 
The  United  States  vs.  The  E.  C.  Knight  Co.,  156  U.  S.  1. 
CLARK,  J.  B.     The  Problem  of  Monopoly. 

CHAPTEE  II 

Federal  Anti-Trust  Decisions,  Vol.  II.    "Knight  Case." 

Steel  Investigation,  U.  S.  House  of  Eepresentatives, 
Stanley  Committee,  62nd  Cong.,  2nd  Sess.,  1911-1912. 

WYMAN,  BRUCE.  Control  of  the  Market:  A  Legal  Solu- 
tion of  the  Trust  Problem. 

WILLOUGHBY,  W.  F.    The  Yale  Review,  May,  1598. 

CHAPTEE  III 

Annals,  July,  1912. 

CLARK,  J.  B,     The  Problem  of  Monopoly. 

175 


176  References 


Federal   Trade  Commission  Act,   1914. 

Eeport  of  the  Attorney  General  of  the  United  States, 

1912. 
Eeport  of  Interstate  Commerce  Commission  on  Pipe  Line 

Monopoly. 
WYMAN,  BRUCE.     Control  of  the  Market.     "Types  of 

Unfair  Competition. ' ' 
NIMS,  H.  D.    The  Law  of  Unfair  Business  Competition. 

CHAPTER  IV 

American  Electric  Eailway  Association's  Eeport  on  Pub- 
lic Utilities. 

ELY,  EICHARD  T.     Monopolies  and  Trusts. 

HAVEMEYER,  H.  O.  Tariff  and  Industrial  Combinations. 
Ind.  Com. 

HADLEY,  ARTHUR  T.  Economics.  ' '  Private  Property  and 
Public  Welfare." 

HOLT,  BYRON  W.     United  States  Industrial  Commission. 

United  States  Industrial  Commission,  Vol.  XIII. 

Federal  Anti-Trust  Decisions.  "National  Harrow  Case." 

HOMER,  FRANCIS  T.  The  Public,  the  Investor,  and  the 
Holding  Company.  1914. 

UNTERMEYER,  SAMUEL.  Munsey  's  Magazine.  ' '  Holding 
Companies,"  August,  1912. 

HICKS,  P.  C.    Competitive  and  Monopoly  Price. 

CHAPTER  V 

The  New  Yorlc  Times,  Nov.  7,  1911. 

American   Economic  Eeview,   Sept.,   1913.     Stevens  on 

Pools. 
E.  H.  Macy  $  Co.,  vs.  American  Publishers'  Association, 

"Book  Trust  Case." 


References  177 


INGERSOLL,  WM.  H.  Remedies  Needed.  American  Fair 
Trade  League. 

BREWER,  JUSTICE  DAVED  A.  Northern  Securities  Case, 
"Rule  of  Reason." 

DAWES,  CHARLES  G.  New  York  Times.  "On  the  Sher- 
man Act."  Nov.  7,  1911. 

Federal  Anti-Trust  Decisions,  Vol.  IV:  "Miles  Medical 
Co." 

The  U.  S.  Industrial  Commission,  Vol.  XIII.  "Trusts 
and  Industrial  Combinations. ' ' 

The  International  Harvester   Company   Decision,   1914. 

STEVENS,  WILLIAM  S.  Industrial  Combinations  and 
Trusts,  Chap.  IX. 

TAFT,  WM.  H.  N.  T.  Sunday  Times.  ' '  Review  of  Trust 
Decisions,"  1914. 

WHITE,  CHIEF  JUSTICE.  Standard  Oil  Decision.  "Rea- 
sonable Restraints. ' ' 

CHAPTER  VI 

Amendments  to  Anti-Trust  Act,  October  15,  1914. 
HUGHES,  CHARLES  E.    Addresses.    "Addyston  Case." 
International  Harvester  Company,  Report  on,  March  3, 

1913. 
Federal    Trade    Commission,    Act    of,    Sept.    26,    1914, 

"Labor." 

Low,  SETH.    National  Civic  Federation  on  Sherman  Act. 
Senate  Committee  on  Interstate  Commerce,  Hearings  on 

Sugar  Trust,  1911-12. 

The  Attorney  General's  Reports,  1910  and  1913. 
Powder  Trust  Decision,  June  20,  1911. 
Pacific  Coast  Plumbing  Supply  Association. 
Sherman  Anti-Trust  Act  of  July  2,  1890. 
U.  S.  Bureau  of  Corporations,  Reports  on  Beef  Industry, 

Tobacco,  Petroleum,  etc. 


178  References 


CHAPTEE  VII 

MEAD,  EDWARD  S.  Corporation  Finance,  Chaps.  II-III. 
Trust  Finance,  Chaps.  XVI-XVII. 

CONANT,  LUTHER.  Commissioner,  Bureau  of  Corpora- 
tions, Washington.  Eeports. 

SAKOLSKI,  A.  M.  Journal  of  Accountancy,  July,  1911, 
Vol.  12.  No.  3. 

GREENE,  THOMAS  L.  Corporation  Finance.  "Stock 
Watering. '  > 

FAY,  CHARLES  N.    Big  Business  and  Government. 

CLEVELAND,  F.  A.  Railroad  Finance.  Railroad  Promo- 
tion. 

The  Independent,  Oct.  19,  1911.    "IT.  S.  Steel  Corp." 

DAVIS,  P.  V.  Pujo  Committee's  Report,  H.  E.  62nd 
Cong.,  3rd  Sess.,  Eeport  1599,  pp.  159-161,  "Con- 
centration of  Control  of  Money  and  Credit." 

ERICKSON,  HALFORD.  Valuation  of  Public  Utilities 
(Eisks). 

MORGAN,  J.  P.  &  Co.,  Statement,  "Money  Trust"  Inves- 
tigation. 

CHAPTEE  VIII 

Bureau  of  Labor,  Wholesale  Prices,  Washington,  March, 

1913. 

HOBSON,  J.  A.     Gold,  Prices,  and  Wages. 
The  Ironmonger.     f '  Price  Maintenance. ' '    Birmingham, 

Eng. 

Unfair  Retail  Practices.    American  Fair  Trade  League. 
HOLMES,  JUSTICE  OLIVER  W.     Dr.  Miles  Medical   Co. 

Decision,  220  U.  S.  373. 
BRANDEIS,   Louis   D.     Harper's   Weekly.     "Cut-throat 

Prices."    Nov.  15,  1913. 
NEYSTROM,    PAUL   H.      On   Competitive    Unfairness   of 

Quantity  Price. 


References  179 


Anti-Trust  Searings,  House  Committee  on  the  Judiciary, 
1912. 

United  States  Industrial  Commission,  Eeview  of  Evi- 
dence, Vol.  XIII,  p.  xxviii. 

JENKS,  JEREMIAH  W.    The  Trust  Problem. 

CHAPTER  IX 

HOBSON,  J.  A.    Gold,  Prices,  and  Wages. 

HANEY,  LEWIS  H.  Business  Organisation  and  Combina- 
tion. 

Report    on    the    International    Harvester    Co.      Conant. 

The  Annalist.  "U.  S.  Steel  Corporation. ' '  New  York, 
February  2,  1914. 

SAUNDERS,  W.  L.    Trust  Legislation  Hearings  (1914). 

FLINT,  CHARLES  R.  On  Limits  of  Organization  in  Trusts. 
U.  S.  Ind.  Com. 

REDFIELD,  WILLIAM  C.  Report  as  Secretary  of  Com- 
merce, 1913. 

WILLIAMS,  JOHN.  Industrial  Combinations  and  Labor 
Conditions,  Philadelphia,  July,  1912. 

The  U.  S.  Bureau  of  Corporations'  Report. 

The  U.  S.  Industrial  Commission,  Vol.  XIII. 

CHAPTER  X 

DURAND,  E.   DANA.     Quarterly  Journal  of  Economics, 

May  and  August,  1914. 
WALKER,  FRANCIS.    Annals,  July,  1912. 
American  Economic  Review,  June  19,  1914. 
Canadian  Acts  of  1889,  1904,  1906,  1907,  1910. 
TAFT,   WM.    H.     Address   on   Sherman   Act,   Waterloo, 

Iowa,  Sept.  28,  1911. 
SHANK,    SAMUEL   H.,    Consul,   Austria-Hungary.     Steel 

Trust. 


180 


References 


CHAPTER  XI 

ADAMS,    HENRY    C.      Conference    on   Trusts.      Chicago, 

Sept.  13-16,  1899. 

HOBSON,  J.  A.    Gold,  Prices,  and  Wages. 
HOLMES,  JUSTICE  O.  W.     On  True  Competition. 
FITCH,  JOHN  A.    Annals.    ' '  The  U.  S.  Steel  Corporation 

and  Labor,"  July,  1912. 

EGBERTS,  GEORGE  E.     The  Investment  Fund.    Pamphlet. 
ALGER,  GEO.  W.    The  Old  Law  and  the  New  Order. 


INDEX 

Adams,  H.  C.,  on  trusts  and  public  welfare,  162,  163 
Advertising,  fraudulent,  124,  125 

Agreements,  cooperative  trade,  66-68 ;  purpose  and  forms 
of,  68-78;  why  pooling  failed,  71-74;  factors',  74,  75; 
and  price-fixing,  76 

Agricultural  implement  works  and  consolidation,  16 
Alger,  G.  W.,  on  solution  of  Trust  problem,  168 
Aluminum  Company,  in  restraint  of  trade,  41,  42 
Amalgamation,  trade  agreements  in  England,  67 
American  Bicycle  Company,  promotion  of,  101,  102 
American  Electric  Eailway  Association,  and  public  util- 
ities, 59 

American  Fair  Trade  League,  78 
American  Sugar  Kefining  Company,  investigation,  87 
American  Tobacco  Company,  abandons  exclusive  control, 
38;  unjust  practices,  40;  prosecution,  86;  trust  disso- 
lution, 91,  92 

American  Wall  Paper  Company,  type  of  agreement,  69 
Anthracite  coal  strike  award,  164,  165 
Anti-Trust  Act,  its  scope,  28,  29 ;  prosecutions  under,  88- 
91;  results  of  prosecutions,  91-94;  recent  amendments, 
94-96 

Federal  policy  towards  trusts,  82-96;  cause  of  legisla- 
tion, 84,  85 ;  investigation  of  conditions,  85-88 
Atkinson,  Edward,  on  competition,  I,  125 
Australia,  and  combinations,  151 
Austria-Hungary's  steel  Trust,  152,  153 

Banking  credit  and  Trust  control,  108-111 

Banks,  interlocking  directorates,  when  forbidden,  95 

Bath  Tub  decision,  77 

Beef  industry,  prosecution,  86 

"Big  Business,"  2;   is  it  unfair?  37-39;   price-making 

forces  in,  125-128;  bargaining  power  of,  160-162;  on 

trial,  171 

181 


182  Index 


Big  Business  and  Government,  107,  117 

Book  Trust  cases,  76,  77 

Bowles,  F.  T.,  and  U.  S.  Shipbuilding  Company,  21 

Brandeis,  Louis  D.,  trust  formula,  46;   on  price-cutting. 

123 

Brewer,  D.  A.,  on  Northern  Securities  Case,  80 
Brooks,  J.  G.,  on  capitalism,  134 
Bureau  of  Corporations,  incorporated  into  Federal  Trade 

Commission,  86;  government  enquiry,  87,  88 
Business,  equilibrium  of,  22-25 
Business  Organization  and  Combination,  131 

Canadian  Acts  and  combinations,  151 

Capital,  better  command  of  cause  of  Trusts,  11,  12;  share 
in  value  of  products  of  industry,  158-160;  and  public 
settlement  of  labor  disputes,  164-167;  and  command  of 
credit,  97-111;  supply  of  working,  98-100;  interest  serv- 
ice of,  131-134 

Capitalization,  and  promoter's  profits,  100-103;  methods, 
102,  103;  risk  elements  in  Trust,  103-106;  use  and 
abuse  of  over-,  106-108 

Carnegie  Company,  8,  9 

Cartel,  agreements  in  Germany,  67,  147-150 

Central  Association  of  Eefineries,  basis  of  Standard  Oil, 
19 

Central  West  Publishing  Company,  in  restraint  of  trade, 
42,44 

Chicago  Convention,  on  Trusts  and  Trust  publicity,  165 

Clark,  J.  B.,  on  our  industrial  system,  4;  on  rebates  on 
freight,  11 

Collier,  W.  M.,  and  groups  of  Trusts,  7,  8 ;  and  name  for 
competition,  10 

Combination,  one  of  the  colossal  forces,  3;  to  it  through 
competition,  6-8 ;  by  rate  control,  17-20 ;  in  restraint  of 
trade  prohibited,  28;  and  unfair  competition,  36,  37; 
and  potential  competition,  51 ;  and  patents,  54,  55 ;  cor- 
porate, brought  under  control,  97 ;  great  industrial,  and 
prices,  112-128;  effect  of  on  prices,  119,  120;  and  small- 
er industries,  127;  problem  of  management,  129-146; 
industrial  efficiency  of,  137-142;  effects  on  labor,  146; 
and  the  community,  158-174;  and  profits  of  business, 
162;  in  labor  controversies,  164-167;  asset  of  industrial 
society,  170 


Index  183 


Commerce  Act  of  1887,  forbids  pooling,  25;  its  scope,  26, 
27 

Commission,  government  by,  164-167 

Commodities,  relative  prices  under  Trust  regime,  113-114 

Competition,  law  of  ultimate  appeal,  1;  one  of  the  colos- 
sal business  forces,  3 ;  the  case  against  it,  4-6 ;  through 
it  to  combination,  6-8;  one  of  causes  of  Trusts,  10; 
fair  and  unfair,  30-45;  unfair  corporate,  32-34;  types 
of  unfair,  34,  35 ;  legal  limits  of  fair,  39-41 ;  court  con- 
trol of  unfair,  41-45 ;  lawlessness,  42,  43 ;  regulation  of, 
46-48 ;  and  monopoly,  48,  49 ;  lesson  by  combination,  55 ; 
and  public  utilities,  56,  57;  between  states  cause  of 
holding  company,  62 ;  application  of  term,  78 ;  trend  of 
legislation  regarding  it,  97 ;  prevention  of  abuses,  168, 
169;  asset  of  industrial  society,  170;  must  be  normal- 
ized, 170;  conservation  of,  173,  174 

Competitive  and  Monopoly  Price,  49 

Competitive  Unfairness  of  Quantity  Price,  On,  124 

Conant,  Luther,  consolidation  figures,  99 

Concentration,  of  industries,  15-17 

Concentration  and  Control,  6 

Consolidation,  for  price  control,  14-17 

Consumer,  and  wage  dispute  settlements,  164,  165 

Contracts,  re-sale  in  mercantile  field,  74-78 ;  cancelled  by 
Supreme  Court,  76,  77 ;  in  restraint  of  trade,  79 ;  exclu- 
sive, forbidden,  95 

Control  of  the  Marlcet,  39,  40 

Cooperation,  in  modern  business,  4 ;  necessity  for,  a  cause 
of  Trusts,  12 ;  Trust  management  a  cooperative  service, 
130,  131;  in  foreign  trade,  155-157 

Cooperative  trade  agreements,  66-68 

Cooperative  competition,  unfair,  32-34;  coercion  by,  34-37; 
in  public  utilities,  56-58;  elimination  of  unfair,  174 

Corporate  service,  domain,  46 ;  problem  of  public  utilities, 
56-58 ;  holding  company  management,  63,  64 

Corporations,  combination  of,  forms  Trust,  2;  and  hold- 
ing companies,  60-65;  as  stockholder,  61;  Bureau  of 
Enquiry,  87,  88 ;  and  retailer,  121 

Corporation  Finance,  102 

Credit,  better,  and  cause  of  Trusts,  11,  12 

Credit,  command  of,  97-111;  banking  and  trust  control, 
108-111 


184  Index 


Dawes,  C.  G.,  and  trade  agreements,  67 
Dick  Mimeograph  Case,  54,  75 
Dodd,  S.  C.  T.,  defines  Trusts,  2,  3 
Durand,  E.  D.,  on  treatment  of  Trusts,  154 

Economic  peril,  and  Trust  policies,  14,  37 
Eddy,  A.  J.,  his  The  New  Competition,  5,  6 
Electrical  industries,  investment  in  United  States,  58 
Ely,  E.  T.,  definition  of  monopoly,  49,  50 
England,  and  Trusts,  147,  150-152 
Engrossing,  offense  to  trade,  79,  80 
Erickson,  Halford,  on  valuation  of  utilities,  105,  106 
Europe,  policy  toward  Trusts,  151 

Factors'  agreements,  74,  75 

Faith,  dynamic  in  industrial  growth,  99 

Federal  acts  in  regard  to  Trusts,  86-96 

Federal  anti-Trust  policy,  78,  82-96 

Federal  Government,  as  guardian,  169 

Federal  Trade  Commission,  Act,  82 ;  and  investigations, 

86,  87;  purpose,  95;  feature  of  the  Act,  44;  powers, 

169,  174 

Fitch,  J.  A.,  on  collective  bargaining  with  labor,  161 
Flint,  C.  K.,  on  success  of  industrials,  141,  142 
Foote,  A.  R.,  on  modern  industrial  competition,  6,  7 
Forestalling,  offense  to  trade,  79,  80 

Gary,  E.  H.,  and  steel  investigation,  23,  24 

' '  Gentlemen 's  Agreement, ' '  99,  72 

Germany,  combination  and  trade,  3,  4;  agreements  in  re- 
straint of  trade,  67;  and  Trusts,  147-150;  Potash 
Trust,  156 

Globe  Naval  Stores,  agreement,  70 

Gold,  Prices,  and  Wages,  2,  116,  161. 

Great  Britain,  competitive  freedom  in  trade,  3 

Hadley,  A.  T.,  and  monopoly  prices,  51 
Haney,  L.  H.,  on  industrial  service,  130,  131 
Hatch,  A.  F.,  on  causes  of  Trusts,  11 
Havemeyer,  H.  O.,  and  cause  of  Trusts,  53,  54 
Hicks,  F.  C.,  and  price-making  groups,  49 
Higginson,  H.  L.,  on  critics  of  Sherman  Act,  154 


Index  185 


Hobson,  J.  A.,  defines  Trusts,  2;  on  meaning  of  growth 
of  Trusts,  116;  on  bargaining  for  labor,  160;  161 

Holding  companies,  their  rise,  13;  supersede  community 
of  interest,  25;  refinement  of  corporate  compounding, 
33;  right  and  wrong  in,  60-65;  refuge  for  Trusts,  62, 
63;  control  of  public  utilities,  63,  64;  supplant  pools, 
72 

Holmes,  Justice  O.  W.,  and  railroad  rate  discrimination, 
11;  and  shoe  merger,  55;  and  price-cutting,  122;  on 
competition,  170,  171 

Holt,  B.  W.,  and  cause  of  Trusts,  53,  54 

Homer,  F.  T.,  on  public  utilities,  57,  63,  64 

Hughes,  C.  E.,  and  Anti-Trust  Act,  85 

Individual  business  vs.  corporation,  120,  121 

Industrial  Combinations  and  Trusts,  70 

Industries,  consolidation  of,  15-17;  distribution  of,  and 
prices,  24,  25 ;  basis  of  industrial  liberty,  48 ;  electrical 
in  U.  S.,  58;  five  large,  prosecuted,  86;  faith  in  Amer- 
ican, 99;  profits  of  Trusts,  134-137;  efficiency  of  com- 
binations, 137-142;  large,  and  labor,  142-146;  contrib- 
utors to  the  cumulative  value  of  products  of,  158-160 

Ingersoll,  W.  H.,  on  large-company  business,  121 

Interest,  service  of  capital,  131-134 

International  Harvester  Company,  case,  79,  86;  investiga- 
tion, 88;  larger  profits,  135;  and  foreign  business, '156, 
157 ;  and  welfare  work,  163 

Interstate  Commerce  Act,  82;  and  pooling  agreements,  71, 
72 ;  and  grant  of  powers,  95,  96 

Investment  Fund,  The,  161 

Investment,  supply  of,  98-100;  in  trust  securities,  133 

Iron  and  steel  mills,  consolidation,  16 

Jenks,  J.  W.,  on  prices,  119 

Joint  Traffic  Association,  Trust  case,  25,  28 

Knight,  E.  C.  Company  vs.  the  U.  S.,  13,  27 

Labor,  union,  5;  union,  causes  of  Trusts,  12;  associations 
exempt  from  Anti-Trust  Act,  96;  organized,  relations 
with  large  industries,  142-146;  shares  in  value  of  prod- 
ucts of  industry,  158;  bargaining  for,  160,  161;  and 
national  dividend,  162;  and  public  arbitration,  164-167 

"Law  of  Unfair  Business  Competition,  32 


186  Index 


Mail-order  house  and  retail  merchant,  121 

McReynolds,  Atty.  Gen'l.,  on  Trust  dissolution,  91 

Mead,  E.  S.,  on  the  promoter,  98,  99 

Merchandizing,  unfair,  120-122 

Michigan  Lumber  Dealers'  Association,  pool,  70,  71 

Miles  Medical  Company,  decision,  75 

Mimeograph,  Dick,  Case,  54,  75 

Misrepresentation,  and  prices,  122-125 

Money,  control,  Pujo  investigation,  87 

Monopoly,  advantage  to  by  rebates,  11;  private,  30,  31; 
value  of  monopolies,  46 ;  and  public  sense  of  right,  48  ; 
law  and  limits  of,  48-51;  defined,  49,  50;  power  over 
market,  50;  price-making  power,  51;  elements,  sources 
of,  52-56;  and  patents,  54,  55;  and  public  utilities,  57, 
58 ;  holding  company  power,  63 ;  application  of  the 
term,  78;  offensive  practices,  79,  80;  recent  legislation 
against,  94,  95;  trend  of  legislation  regarding,  97;  so- 
lution of  the  problem,  171-174 

Monopolies  and  Trusts,  49,  50 

Morgan,  J.  P.,  on  money  and  credit,  110 ;  and  labor,  144 

Municipal  ownership  of  public  utilities,  57,  58 

National  Asphalt  Company,  speculative  value,  52 
National  Cash  Register  Company,  and  welfare  work,  163 
National  Cordage  Company,  pool,  69,  70 ;  and  Anti-Trust 

Act,  84 

National  Harrow  Case,  and  patents,  55 
National  Tube  Company,  and  Steel  Trust,  9 
National  Wall  Paper  Company,  formed,  73 
Natural  resources,  owners  of,  share  in  value  of  products 

of  industry,  158 
New  Competition,  The,  5,  6 
New  Haven  railway,  Anti-Trust  Case,  29 
Neystrom,  P.  H.,  on  price  discrimination,  124 
Nims,  H.  D.,  on  unfair  competition,  31,  32 
Northern  Securities  Company,  Anti-Trust  Case,  25,  28; 

type  of  compounded  corporation,  33;  Judge  Brewer  'B 

statement,  80 

Old  Law  and  New  Order,  The,  and  solution  of  Trust 

problem,  168 
Organizer,  of  means  of  production,  158,  159 


Index  187 


Pacific  Coast  Plumbing  Supply  Association,  in  restraint 
of  trade,  42 ;  decree  regarding,  94 

Packing  industries,  136,  137 

Panic  of  1873,  15 

Patented  articles,  price-fixing  decisions,  75,  76 

Patents,  value  as  special  privilege  to  combinations,  54,  55 

Pipe  lines,  help  to  Standard  Oil,  45;  cases  before  court, 
45 ;  getting  capital  for,  98 

Pittsburgh  Plate  Glass  Company,  a  monopoly,  53 

Pooling  associations,  trade  agreements  in  U.  S.,  67;  for 
fixing  prices,  68-71 ;  agreements,  why  failed,  71-74 

Powder  Pool  agreement,  71 ;  Trust  Decree,  94 

Price  control,  consolidation  for,  14-17 

Prices,  fluctuations  of,  22-24 ;  in  competitive  business,  49- 
50;  affected  by  amount  of  products,  52;  of  glass,  53; 
irregularity  in,  72;  of  patented  articles,  75,  76;  dis- 
criminations in,  forbidden,  95;  under  Trust  regime, 
112-128 ;  course  of  wholesale,  112-115 ;  stabilizing  whole- 
sale, 117-120;  unfair  merchandizing,  120-122;  price-cut- 
ting unfair,  122,  123;  quantity  and  misrepresentation, 
122-125;  price-making  forces,  125-128;  and  interest 
cost,  131,  132;  stability  and  labor,  144 

Problem  of  Monopoly,  4,  39 

Production,  economics  of,  cause  of  Trusts,  11 

Profits  on  industrial  Trusts,  134-137 

Promoter,  work  of,  98 ;  and  profits,  99-102 

Public  commissions,  as  business  umpires,  164-167 

Publicity  of  accounts  and  profits,  165,  166 

Public,  the  Investor,  and  the  Holding  Company,  The,  57 

Public  Policies  as  to  Municipal  Utilities,  65 

Public  utilities,  regulation  of,  56-58;  principles  outlined 
by  American  Electrical  Eailway  Association,  59,  60; 
control  by  holding  companies,  63,  64 

Public  welfare,  adjustments  of  Trusts  to,  162,  163 

Publishers  Association,  agreements  and  court  decision,  76, 
77 

Pujo  Money  Trust  Investigation,  87 ;  on  money  and  credit, 
108-110 

Railroad  Promotion,  103 

Railway  domain,  extending  control  over,  25-29 
Railway,  rate  discriminations,  a  cause  of  Trusts,  10,  11, 
17-19 


188 


Index 


Bate  control,  cause  of  Trusts,  17,  18;  and  Standard  Oil 

contract,  20 

Bate  of  supply,  retardation  of,  115-117 
Bebates,  causes  of  Trusts,  10,  11,  17-19 
Bedfield,  W.  C.,  on  big  business,  140,  141 
Beed,  B.  D.,  restriction  of  state  charters  of  interstate 

companies,  47 

Begrading,  offense  to  trade,  79,  80 
Begulation  and  monopoly,  46-65 
Be-sale  contracts,  74-78,  cancelled  by  Supreme  Court,  76, 

Bestraint  of  trade,  combinations  in,  28;   in  commercial 
practice,  66-81;  cooperative  agreements,  66-68;  agree- 
ments in  Germany,  67 ;  rule  of  reasoning,  78-81 ;  uncer- 
tain interpretation,  80 
Betailer  vs.  corporation,  120-122 
Bisks,  pioneering,  in  modern  business,  158-160 
Boberts,  G.  E.,  on  equality  in  essentials,  161 
Bockefeller,  J.  D.,  and  pipe  lines,  98 

Sakolski,  A.  M.,  on  security  situation,  100 

Salt  Trust,  and  Anti-Trust  Acts,  84 

Saunders,  W.  L.,  on  big  business,  139-140 

Schwab,  C.  M.,  on  the  Steel  Trust's  advantages,  52,  53; 

on  steel  rail  pools,  71 
Security  values,  reason  for  loss  of  public  confidence  in,  62 
Service,  the  new  duty  of  business,  171 
Service  companies,  public  relations  of,  59,  60 
Sheet  Steel  Trust,  capitalization,  103 
Sherman  Anti-Trust  Act,  and  the  trusts,  61,  76,  77,  82; 

summary  of  Act,  83-85;  critics  of,  154;   and  foreign 

trade,  155;  and  the  code  of  fair  dealing,  168 
Singer  Sewing  Machine  Company,  as  exporter,  157 
Socialism,  its  coming  as  a  social  movement,  5 ;  opposed  to 

competition,  6 

Society,  cause  of  progress  of,  171 
South  Improvement  Company,  charter  revoked,  1,  18 ;  and 

rate  rebates,  18 

Southern  Bailway  and  Steamship  Association,  pool,  69 
Standard  "Alliance,"  basis  of  the  Standard  Oil,  19,  20 
Standard  Oil  Company,  1;  and  railroad  rate  control,  18; 

its  ascendency,  18,  19;  its  unfair  advantages,  44,  45; 

and  holding  company,  62,  63;  decision,  80;  and  Sher- 


Index  189 


man  Anti-Trust  Act,  84;  prosecution,  86;  dissolution 
of  Trust,  91,  93 ;  capitalization,  102 ;  and  exports,  167 

Steel  Hoop  Trust,  capitalization,  103 

Steel  Bail  Pool,  70,  71 

Steel  Trust,  prosecution,  86;  absorbs  other  trusts,  103; 
history,  104,  105 ;  prices  abroad  and  at  home,  126 

Stevens,  W.  S.,  analysis  of  trade  agreements,  68 

Sugar  Refineries  Company,  agreement,  13 ;  Supreme  Court 
decision,  13 ;  absorption  of  the  refining  business,  37,  38 

Sugar  Trust  of  New  York,  and  holding  company,  62,  63 

Sugar  Trust  and  Anti-Trust  Act,  84 

Supply,  rate  of  retardation  of,  115-117 

Supreme  Court  of  U.  S.,  holding  companies '  decisions,  13 ; 
Sugar  Refining  case,  13;  Knight  case,  13;  Trust  Act 
and  railway  transportation,  25 ;  and  Trust  Act,  27,  28 ; 
Pipe  Line  cases,  45;  Dick  Mimeograph  case,  54;  Har- 
row case,  55;  sale  contract  cancelling,  76;  Book  Trust 
cases,  76,  77 ;  Bath  Tub  Case,  77 ;  Anti-Trust  decisions, 
89,  90 

Syndicate,  trade  agreements  in  France,  67 

Taft,  W.  H.,  on  treatment  of  Trusts,  154,  155 

Textiles,  consolidation  of  manufacturers,  15-17 

Tin  Plate  Trust,  capitalization,  102,  103 

Trade,  combinations  in  restraint  of,  prohibited,  28;  in 
commercial  practice,  66-81 ;  cooperative  agreements,  66- 
68 ;  agreements  in  Germany  in  restraint  of,  67 ;  rule  of 
reason  in  restraint  of,  78-81 ;  Commission  Act  Plan,  95 

Trade  Unionism,  its  coming  as  a  social  movement,  5 ;  and 
cause  of  trusts,  12 ;  relations  with  large  industries,  142- 
146 

Trans-Missouri  Freight  Association,  Anti-Trust  Case,  25, 
27 ;  decision,  80 

Transportation,  advantage  to  monopoly  in  rebates,  10,  11, 
17-19;  control  by  Trust  Act,  25-29 

Trusts,  origin  and  causes  of,  1-13;  unsettled  public  issue, 
1;  definitions,  2-4;  dominating,  5;  the  world's  greatest 
Trust,  8-10;  main  causes  of,  5-13;  development  of  pol- 
icies, 14-29;  coming  of  the  idea  of,  16;  to  establish 
monopoly,  17;  and  rate  discriminations,  17,  18;  legit- 
imate aims,  20-22 ;  Trust  Act  applied  to  railway  trans- 
portation, 25-29 ;  attacked  by  Act  of  1890,  26 ;  reasons 
for  opposition  to,  30 ;  unfair  competition  aspect  treated, 


190 


Index 


31-45;  regulation  and  monopoly,  46-65;  franchise,  47; 
element  of  monopoly  in,  52 ;  cause  of,  53,  54 ;  and  pat- 
ents, 54,  55;  and  public  utilities,  56-58;  holding  com- 
pany system,  60-65 ;  whence  derive  their  powers,  66-71 ; 
failure  of  pooling  agreements,  71-74 ;  Book  Trust  cases, 
76,  77;  Bath  Tub,  77;  Federal  Anti-Trust  policy,  78; 
Federal  policy  toward,  82-96;  Sherman  Act,  83-85; 
causes  of  anti-legislation,  84,  85;  investigations  of  con- 
ditions, 85-88;  five  prosecuted,  86,  87;  legislation,  87, 
88 ;  prosecutions  under  Act,  88-91 ;  dissolution  results, 
91-94;  recent  legislation,  94-96;  financing,  98,  99;  cap- 
italization, 100-108 ;  banking  credit  and  Trust  control, 
108-111;  prices  under  Trust  regime,  112-128;  meaning 
of  growth,  115-117;  problems  of  management,  129-146; 
profits  on  industrial,  134-137;  efficiency,  137-142;  rela- 
tions with  labor,  142-146;  status  in  other  lands,  147- 
157 ;  prohibition  or  regulation,  153,  154 ;  cooperation  in 
foreign  trade,  155-157;  adjustment  of  public  welfare, 
162,  163;  and  public  commissions  in  labor  controver- 
sies, 164-167;  remedial  policies,  165,  166;  solution  of 
the  problems  of,  167-174;  new  duty  of  service,  171 

Trust  Finance,  107 

Trusts,  The,  What  Can  We  Do  with  Them?  What  Can 
They  Do  For  Us?  8 

Trust  Act,  applied  to  railway  transportation,  25-29 ;  its 
scope,  25,  27;  supreme  vs.  the  states,  29;  bad  features 
of,  80 

Trust  movement,  origin  and  growth,  6-7 

Trust  policies,  development  of,  14-29 ;  legitimate  aims  of, 
20-22 

Trust  problem,  defined,  7 

Trust  Problem,  The,  119 

Truth  About  the  Trusts,  The,  2,  3,  21 

Unfair  corporate  competition,  30-45;  court  control  of,  41- 
45;  Acts  regarding,  95;  elimination  of,  174 

Unfair  merchandising,  120-122 

Unfair  Retail  Practices,  121 

Unionism,  see  trade  unionism 

United  Pipe  Line  Company,  and  oil  monopoly,  20 

United  States,  restoring  competitive  conditions,  4 ;  and 
patents,  54,  55;  and  agreements  in  restraint  of  trade, 
67 ;  policy  toward  Trusts,  152 


Index  191 


United  States  Bureau  of  Corporations,  on  Trust  profits, 

135 
United  States  Industrial  Commission,  data  on  prices,  119; 

on  price-making  forces,  125-128 
United  States  Shipbuilding  Company,  its  principles,  21, 

22 
United  States  Steel  Corporation,  beginning  and  growth, 

8-10;  and  prices,  23,  24;  and  organized  labor,  142,  143; 

and  exports,  157 ;  and  bargaining  with  labor,  161 ;  and 

welfare  work,  163 
Untermeyer,  Samuel,  on  the  holding  company,  62 

Van  Hise,  C.  E.,  on  the  old  order  and  the  new,  6 

Walker,  Francis,  on  agreements  in  England,  150 
Wall  paper  industry  and  pooling  agreements,  72,  73 
Waterbury,  J.  M.,  on  Cordage  Company  pool,  69,  70 
Welfare  work,  and  trusts,  162,  163 

Western  Newspaper  Union,  in  restraint  of  trade,  43,  44 
Whiskey  Trust,  and  Anti-Trust  Acts,  84 
White,  Chief  Justice,  on  Standard  Oil  Case,  80,  81 
Williams,  John,  on  labor  and  Trusts,  145 
Willoughby,  W.  F.,  on  Trust  founders,  17 
Wire  Trust  and  Anti-Trust  Acts,  84 
Wisconsin  Kailroad  Commission,  106 
Wyman,  Bruce,  on  types  of  unfair  competition,  34,  35; 
on  legal  and  illegal  acts,  39,  40 

Yale  Eeview,  The,  17 

Yellow  Pine  Lumber  Manufacturers'  Association,  in  re- 
straint of  trade,  42 


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